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March 26, 1998
Securities and Exchange Commission
450 Fifth St., N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Via Edgar Electronic Filing System
In Re: File Number 0-1026
------------------
Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Whitney Holding Corporation (the
"Company") is the Company's Report on Form 10-K for the period ended December
31, 1997.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
/s/ Edward B. Grimball
--------------------------
Edward B. Grimball
Executive Vice President &
Chief Financial Officer
(504) 586-7570
EBG/drm
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[ X ] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- --------------------------
Commission file number 0-1026
WHITNEY HOLDING CORPORATION
Incorporated in Louisiana I.R.S. Employer Identification
No. 72-6017893
228 St. Charles Avenue, New Orleans, Louisiana 70130
Registrant's telephone number, including area code (504) 586-7272
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of February 26, 1998
Approximately $1,146,053,123*
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock, no par value, 20,831,513 shares outstanding as of
February 26, 1998.
Documents Incorporated by Reference
Definitive Proxy Statement dated March 18, 1998, Part III.
An Exhibit Index appears on page 60.
* For the purposes of this computation, shares owned by directors and executive
officers of the Registrant, even though all such persons may not be affiliates
as defined in SEC Rule 405, have been excluded.
Page
- --------------------------------------------------------------------------------
PART I
Item 1: Business 3
Item 2: Properties 3
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to a Vote of Security Holders 4
Item 4a: Executive Officers of the Registrant 4
- --------------------------------------------------------------------------------
PART II
Item 5: Market for the Registrant's Common Stock and
Related Shareholder Matters 5
Item 6: Selected Financial Data 6
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8: Financial Statements and Supplementary Data 29
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 59
- --------------------------------------------------------------------------------
PART III
Item 10: Directors and Executive Officers of the Registrant 59
Item 11: Executive Compensation 59
Item 12: Security Ownership of Certain Beneficial Owners
and Management 59
Item 13: Certain Relationships and Related Transactions 59
- --------------------------------------------------------------------------------
PART IV
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K 60
- --------------------------------------------------------------------------------
Signatures 62
Page 2 of 64 Pages
PART I
Item 1: BUSINESS
Whitney Holding Corporation (the "Company") is a Louisiana bank holding
company registered pursuant to the Bank Holding Company Act of 1956. The Company
began operations in 1962 as the parent of Whitney National Bank, which has been
in continuous operation since 1883. Beginning in 1994 and continuing through
1997, the Company operated as a multi-bank holding company, having established
in connection with business acquisitions the Whitney Bank of Alabama in 1995,
the Whitney National Bank of Florida in 1996 and the Whitney National Bank of
Mississippi in 1997. In January 1998, the Company merged all of its banking
operations into Whitney National Bank. Throughout this annual report, references
to the "Bank" will cover all former subsidiary banks. During 1995, the Company
established the Whitney Community Development Corporation ("WCDC"), which is
authorized to make equity and debt investments in corporations or projects
designed primarily to promote community welfare, including the economic
rehabilitation and development of low-income areas by providing housing,
services, or jobs for residents, or promoting small businesses that service
low-income areas.
The Company, through its banking subsidiary, engages in commercial and
retail banking and in trust business, including the taking of deposits, the
making of secured and unsecured loans, the financing of commercial transactions,
the issuance of credit cards, the delivery of corporate, pension and personal
trust services, and certain limited investment services. The Bank renders these
services throughout its market areas in south Louisiana, south Alabama, along
the Mississippi Gulf Coast, in the Pensacola, Florida area, and through a
foreign branch on Grand Cayman in the British West Indies.
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Bank. Within its market areas, the Bank competes directly with major
banking institutions of comparable or larger size and resources as well as with
various other smaller banking organizations and local and national "non-bank"
competitors, including savings and loans, credit unions, mortgage companies,
personal and commercial finance companies, investment brokerage firms, and
registered investment companies.
In recent years there has been a significant consolidation within the
financial services industry, particularly with respect to the banking and
savings and loan segments of this industry. This consolidation has been driven
more recently by general competitive pressures. All of the Bank's major direct
banking competitors have been relatively active in expansion through
acquisition. Since 1994 the Company has acquired seven separate banking
operations involving approximately $975 million of assets and will complete two
additional bank mergers in the second quarter of 1998 involving approximately
$338 million of assets. The trend toward industry consolidation is expected to
continue in the near term. At the end of 1997, the Company and the Bank employed
a total of 1,958 employees.
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships which have been developed over a
period of many years and is not dependent upon any single customer or upon a few
customers. The loss of any single customer or a few customers would not have a
material adverse effect on the Bank or the Company. The Bank has customers in a
number of foreign countries, but the portion of revenue derived from these
foreign customers is not a material portion of its overall revenues.
The Company and the Bank and their related operations are subject to
federal, state and local laws applicable to banks and bank holding companies and
to the regulations of the Board of Governors of the Federal Reserve System, the
Office of the Comptroller of Currency, and the Federal Deposit Insurance
Corporation.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's and
Whitney National Bank's executive offices are located in downtown New Orleans in
the Bank's main office facilities, which it owns. A portion of these facilities,
as well as portions of certain other facilities in Louisiana and Mississippi,
are available for lease to third parties, although such leasing activity is not
material to the Company's overall operations. The Bank owns approximately
seventy percent of the total number of branch banking facilities currently in
operation. The remaining branch facilities are subject to leases, each of which
management considers
Page 3 of 64 Pages
to be reasonable and appropriate to its location. All facilities, whether owned
or leased, are being maintained in a manner so as to ensure that they continue
to be suitable for their intended banking operations.
In 1998, the Company plans to open or begin construction on fourteen
additional branch locations throughout the market areas of the Bank. Total
capital expenditures for these new facilities are estimated at $25 million.
The Bank holds a variety of property interests acquired through the
years in settlement of loans. Reference is made to Note 8 to the financial
statements included in Item 8 for further information regarding such property
interests as of December 31, 1997.
Item 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or its subsidiaries
is a party or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
William L. Marks, 54, Chairman of the Board and Chief Executive Officer
of the Company and the Bank since February, 1990.
R. King Milling, 57, Director since 1979, President of the Company and
the Bank since December, 1984.
G. Blair Ferguson, 54, Executive Vice President of the Company and the
Bank since July, 1993. Former Executive Vice President and Regional Director of
First City, Dallas, Texas.
Edward B. Grimball, 53, Chief Financial Officer of the Company and the
Bank since October, 1990.
Kenneth A. Lawder, Jr., 57, Executive Vice President of the Company and
the Bank since December, 1991.
Joseph W. May, 52, Executive Vice President of the Company and the Bank
since December, 1993. Former Executive Vice President and Chief Credit Policy
Officer, Comerica, Inc., then a $27 billion bank holding company headquartered
in Detroit, Michigan.
John C. Hope, III, 49, Executive Vice President of the Company and the
Bank since October, 1994 and the Bank since January 1998. Former Chairman and
Chief Executive Officer of the Whitney Bank of Alabama. Former Executive Vice
President and Manager, Southern Area of AmSouth Bank of Alabama.
Robert C. Baird, Jr., 47, Executive Vice President of the Company and
the Bank since July, 1995. Former Chairman of the Board, Chief Executive Officer
and President of Union Bank and Trust, then a $500 million bank headquartered in
Montgomery, Alabama.
Rodney D. Chard, 55, Executive Vice President of the Company and the
Bank since July 1996. Former Consultant, EDS Management Consulting Services in
Toronto, Ontario, Canada. Former Independent Consultant, Chard Consulting
Limited in Toronto, Ontario, Canada.
Page 4 of 64 Pages
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
a) The Company's stock price is reported on the National
Association of Securities Dealers Automated Quotation (NASDAQ)
system under the symbol WTNY. The following table shows the
range of closing prices of the Company's stock for each
calendar quarter of 1997 and 1996 as reported on the NASDAQ
National Market System.
1997 1996
---------------- ---------------
1st Quarter 34 3/4 - 40 1/4 29 3/4 - 31 3/4
2nd Quarter 35 1/4 - 43 29 3/4 - 31 3/4
3rd Quarter 40 - 47 1/4 29 1/2 - 32 3/4
4th Quarter 46 1/8 - 59 3/4 31 3/4 - 35 7/8
b) The approximate number of shareholders of record of the Company, as
of February 26, 1998, is as follows:
Title of Class Shareholders of Record
-------------------------- ----------------------
Common Stock, no par value 5,698
c) During 1997 and 1996, the Company declared dividends as follows:
1997 1996
----------- ------------
1st Quarter $ 0.28 $ 0.22
2nd Quarter 0.28 0.25
3rd Quarter 0.28 0.25
4th Quarter 0.28 0.25
Page 5 of 64 Pages
Item 6: SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------
BALANCE SHEET DATA (dollars in thousands, except per-share data)
AT YEAR-END:
Total assets............................................ $4,312,987 $4,218,033 $3,920,216 $3,606,812 $3,684,753
Total investment in securities.......................... 1,268,288 1,474,198 1,631,738 1,792,878 1,904,843
Total loans............................................. 2,647,578 2,277,584 1,835,439 1,405,900 1,285,186
Total earning assets.................................... 3,916,366 3,807,475 3,518,469 3,240,662 3,340,829
Total deposits.......................................... 3,510,723 3,262,286 3,253,022 3,035,444 3,128,074
Total shareholders' equity.............................. 478,728 440,536 409,135 358,336 312,549
AVERAGE BALANCE:
Total assets............................................ $4,180,226 $3,993,855 $3,691,463 $3,657,259 $3,557,547
Total investment in securities.......................... 1,374,531 1,600,912 1,698,578 1,891,813 1,813,940
Total loans............................................. 2,395,496 1,973,236 1,560,108 1,305,265 1,253,909
Total earning assets.................................... 3,806,450 3,625,756 3,338,755 3,305,898 3,212,117
Total deposits.......................................... 3,277,880 3,170,092 3,084,421 3,060,702 2,999,821
Total shareholders' equity.............................. 458,958 423,927 379,811 323,958 262,107
INCOME DATA
Interest income.............................................. $291,409 $270,620 $249,980 $224,414 $215,414
Interest expense............................................. (106,947) (102,052) (87,797) (69,160) (65,839)
-----------------------------------------------------------
Net interest income.......................................... 184,462 168,568 162,183 155,254 149,575
Reduction in reserve for possible loan losses................ 2,812 4,435 8,960 25,793 58,847
Gains (Loss) on sale of securities........................... 10 19 6 (931) 58
Non-interest income.......................................... 51,025 41,798 38,188 38,590 37,503
Non-interest expense......................................... (159,630) (149,187) (137,005) (130,105) (124,544)
-----------------------------------------------------------
Income before income tax and effect of accounting changes.... $78,679 $65,633 $72,332 $88,601 $121,439
Income tax expense .......................................... 26,461 21,139 22,819 23,672 38,047
-----------------------------------------------------------
Income before effect of accounting changes................... $52,218 $44,494 $49,513 $64,929 $83,392
Cumulative effect of accounting changes, net................. - - - - 685
-----------------------------------------------------------
Net income................................................... $52,218 $44,494 $49,513 $64,929 $84,077
===========================================================
Net income before tax-effected merger-related expenses....... $54,618 $47,913 - - -
===========================================================
COMMON STOCK DATA
Earnings per share(1)........................................ $2.52 $2.18 $2.46 $3.27 $4.27
Earnings per share, assuming dilution(1)..................... $2.50 $2.17 $2.44 $3.25 $4.27
Earnings per share before merger related expenses............ $2.64 $2.35 - - -
Dividends per share, historical Whitney Holding Corporation.. $1.12 $0.97 $0.82 $0.64 $0.43
Dividend payout ratio, including pooled entries.............. 44% 41% 28% 17% 9%
Book value per share, end of period.......................... $23.01 $21.45 $20.21 $16.19 $15.77
Weighted average number of shares outstanding................ 20,706,359 20,419,752 20,107,564 19,875,692 19,678,561
SELECTED RATIOS
Return on average assets .................................... 1.25% 1.11% 1.34% 1.78% 2.36%
Return on average shareholders' equity ...................... 11.38% 10.50% 13.04% 20.04% 32.08%
Net interest margin, taxable-equivalent...................... 4.97% 4.78% 4.98% 4.81% 4.76%
Tier 1 risk-based capital ratio.............................. 14.84% 14.96% 17.25% 20.54% 18.84%
Total risk-based capital ratio............................... 16.10% 16.21% 18.51% 21.81% 20.12%
Tier 1 leverage capital ratio................................ 10.72% 10.01% 9.87% 9.65% 8.08%
Average shareholders' equity to average assets............... 10.98% 10.61% 10.29% 8.86% 7.37%
Shareholders' equity to total assets, end of period.......... 11.10% 10.44% 10.44% 9.93% 8.48%
(1) Earnings per share has been prepared in accordance with SFAS No. 128, and
basic and diluted EPS have replaced primary and fully diluted EPS.
Note: All share and per-share figures give effect to the three-for-two stock splits effective
February 22, 1993 and November 29, 1993.
Page 6 of 64 Pages
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Whitney Holding Corporation earned $52.2 million in 1997, or $2.52 per
share. These results include $3.3 million of merger-related expenses, which
represent an after-tax reduction in earnings of $2.4 million or $0.12 per share.
For 1996, the Company earned $44.5 million or $2.18 per share, including $4.2
million of merger-related expenses, which represent an after-tax reduction in
earnings of $3.4 million or $0.17 per share.
Taxable-equivalent net interest income increased $15.9 million or 9.2%
between 1996 and 1997. Non-interest income increased $9.2 million or 22% from
1996 to 1997, with gains shown in most of the income categories. Non-interest
expense was $11.4 million or 7.9% higher in 1997 compared to 1996, excluding
merger-related expenses of $3.3 million in 1997 and $4.2 million in 1996.
Average earning assets increased $181 million or 5.0% to $3.81 billion
in 1997 compared with $3.63 billion in 1996. Average loans increased $422
million in 1997 or 21% to $2.40 billion from $1.97 billion in 1996. This loan
growth is attributable to strengthened demand for both commercial and consumer
credit in the Company's market areas and to more aggressive solicitation of the
Bank's customers. The increase in loan activity was funded in part by maturing
investment securities and other short term investments which together declined
$242 million or 15% in 1997. At December 31, 1997, total loans outstanding were
$2.65 billion, an increase of $370 million or 16% over the $2.28 billion total
at the end of 1996.
Average total deposits increased $108 million or 3.4% to $3.28 billion
in 1997 from $3.17 billion in 1996 . This growth is attributable in part to the
introduction of new products and services in the Company's market areas. As of
December 31, 1997, total deposits were $3.51 billion compared to $3.26 billion
at the end of 1996.
Non-performing assets continued their steady decrease of recent years
in 1997. At December 31, 1997, non-performing assets were $13.3 million, down
$2.7 million or 17% from $16.0 million at December 31, 1996. The reserve for
possible loan losses was $42.8 million on December 31, 1997, an amount which
represented 475% of nonaccruing loans and 1.6% of total loans. At year end 1996,
the reserve coverage was 467% of nonaccruing loans and 1.9% of total loans.
Whitney Holding Corporation declared quarterly dividends in 1997
totalling $1.12 per share compared with $0.97 per share in 1996, an increase of
$0.15 per share or 15%.
RECENT MERGER & ACQUISITION ACTIVITY
Over the past three years, the Company has expanded strategically in
the Gulf Coast region, acquiring banking operations in southeast Louisiana,
Mississippi, Alabama and Florida. This section describes the results of this
expansion activity. With the exception of the Alabama acquisition in 1995, all
of the business combinations discussed below have been or will be accounted for
using the pooling-of-interests method.
The Company expects to complete two mergers in the second quarter of
1998, one with Meritrust Federal Savings Bank ("Meritrust") and one with
Louisiana National Security Bank ("LNSB"). Meritrust, which is headquartered in
Terrebonne Parish, operates eight banking offices in southeast Louisiana and has
total assets of approximately $233 million. This transaction is priced at
approximately $60.5 million. LNSB operates three banking offices in nearby
Ascension Parish, Louisiana and has total assets of approximately $105 million.
This transaction is priced at approximately $32 million. The Company had
previously established a presence in Terrebonne Parish in February 1997, when it
completed a merger with First National Bankshares, Inc., the parent of First
National Bank of Houma ("FNBH"). FNBH operated five banking offices in
Terrebonne Parish, Louisiana and had total assets of approximately $235 million.
The price of this transaction was $41 million. Also strengthening the Company's
market presence in southeast Louisiana was its merger, in March 1996, with First
Citizens BancStock, Inc., the parent of The First National Bank in St. Mary
Parish, which had ten banking locations and total assets of approximately $243
million at the closing. This transaction was valued at approximately $63
million.
Page 7 of 64 Pages
The Company entered the Mississippi Gulf Coast market in April 1997
when it completed its merger with Merchants Bancshares, Inc., the parent of
Merchants Bank and Trust Company. As a result of this acquisition, the Company
operates twelve banking locations in this market area with total assets of
approximately $208 million. This transaction was priced at approximately $52
million.
The Company had entered the Alabama market in early 1995 when it
purchased the Mobile area operations of The Peoples Bank, Elba, Alabama. This
purchase and assumption transaction involved five banking locations and
approximately $90 million of assets, including $47 million in loans, and $90
million of deposits. Since the purchase the Company has added five new service
locations, including a branch office in Montgomery, and has several locations in
various stages of planning or construction. The Alabama operations included
approximately $290 million in loans at year end 1997.
In late 1996, the Company established a market presence in the western
Florida panhandle by merging with two banking operations in the Pensacola area,
Liberty Holding Corporation, the parent of Liberty Bank, and American Bank &
Trust. With these two mergers, the Company acquired five banking locations and
approximately $105 million in assets. The combined value of these merger
transactions was approximately $24 million.
Page 8 of 64 Pages
AVERAGE BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
(in thousands)
AVERAGE ASSETS 1997 1996 1995
-------------------------------------------------
Cash and due from financial institutions............... $ 202,418 $ 210,660 $ 212,505
U.S. Treasury and agency securities.................... 932,737 1,178,772 1,354,857
Mortgage-backed securities............................. 296,606 277,678 186,306
State and municipal securities......................... 138,384 138,120 134,347
Federal Reserve stock and other corporate
securities........................................... 6,804 6,342 23,068
Federal funds sold and short-term deposits............. 36,423 51,608 80,069
Loans, net of reserve for possible loan
losses of $42,853 in 1997, $45,926 in
1996 and $44,109 in 1995.............................. 2,352,643 1,927,310 1,515,999
Bank premises and equipment, net....................... 127,743 108,272 86,812
All other assets....................................... 86,468 95,093 97,500
-------------------------------------------------
Total assets.................................. $4,180,226 $3,993,855 $3,691,463
=================================================
AVERAGE LIABILITIES
Deposits:
Non-interest-bearing demand deposits................ $ 955,407 $ 905,327 $ 892,593
Savings deposits, NOW account
and money market account deposits................ 1,283,747 1,235,571 1,270,759
Time deposits....................................... 1,038,726 1,029,194 921,069
-------------------------------------------------
Total deposits................................ $3,277,880 $3,170,092 $3,084,421
Federal funds purchased and securities sold
under repurchase agreements......................... 408,757 367,528 196,122
Other liabilities...................................... 34,631 32,308 31,109
-------------------------------------------------
Total liabilities............................. $3,721,268 $3,569,928 $3,311,652
AVERAGE SHAREHOLDERS' EQUITY
Total capital accounts................................. 458,958 423,927 379,811
-------------------------------------------------
Total liabilities and shareholders'
equity....................................... $4,180,226 $3,993,855 $3,691,463
=================================================
FINANCIAL CONDITION
Loans
In 1997 the Company's average loans outstanding increased $422 million
or 21% as compared to 1996. Since 1995, the Company achieved growth in average
loans outstanding of $835 million or 54%, from $1.56 billion in 1995 to $2.40
billion in 1997. The loan growth over this period reflects both the Company's
expansion into Gulf Coast markets and the continued favorable economic
conditions in the Company's overall market area, which includes the southern
portions of Louisiana, Mississippi and Alabama, and the western Florida
panhandle, as well as the impact of a focused effort to market the Company's
retail and commercial loan products.
All categories of loans experienced growth from year end 1996 to year
end 1997. Commercial loans other than those secured by real estate increased
$165 million or 16% in 1997. This increase was well distributed among entities
involved in manufacturing, wholesaling, retailing and natural resource
exploration and development. Loans secured by commercial and other non-retail
residential mortgage loans increased $117 million or 18%. This growth came both
from loans on income producing properties as well as from loans secured by other
real estate used in commercial operations. In 1997, retail mortgage loans
increased $84 million or 24%, largely as a result of the continued successful
marketing of retail loan products that have been introduced in recent years as
an alternative to the conventional mortgage loan products that the Company
originates for sale in the secondary market. Emphasis on the promotion of these
mortgage products is a result of the Company's interest in developing long
Page 9 of 64 Pages
term customer relationships. Loans to individuals, which include various
consumer installment and credit line loan products, increased $10 million or
4.8% in 1997.
LOAN PORTFOLIO BALANCES AT DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------
Commercial, financial,
and agricultural loans............. $ 1,191,649 $ 1,026,862 $ 865,944 $ 692,653 $ 689,634
Real estate loans -
commercial and other............... 786,975 669,683 509,824 379,834 328,210
Real estate loans - retail
mortgage........................... 435,628 351,868 256,007 160,127 126,607
Loans to individuals................ 227,360 216,893 190,058 163,557 132,439
Lease financing receivables......... 5,966 12,278 13,606 9,729 8,296
---------------------------------------------------------------------------------------
Total loans................ $ 2,647,578 $ 2,277,584 $ 1,835,439 $ 1,405,900 $ 1,285,186
=======================================================================================
The accompanying table of loan maturities reflects contractual
maturities, unadjusted for scheduled principal reductions or prepayments.
Approximately 85% of the loans with maturities greater than one year bear fixed
rates of interest.
LOAN MATURITIES AT DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------
(in thousands)
ONE
ONE YEAR THROUGH MORE THAN
OR LESS FIVE YEARS FIVE YEARS TOTAL
----------------------------------------------------------------
Commercial, financial,
and agricultural loans............. $ 729,280 $ 349,610 $ 112,759 $ 1,191,649
Real estate loans -
commercial and other............... 197,773 385,683 203,519 786,975
Real estate loans - retail
mortgage........................... 63,479 136,439 235,710 435,628
Loans to individuals................ 84,368 86,766 56,226 227,360
Lease financing receivables......... 4,074 1,476 416 5,966
----------------------------------------------------------------
Total loans................ $ 1,078,974 $ 959,974 $ 608,630 $ 2,647,578
================================================================
Deposits and Short-Term Borrowings
The Company's average deposits increased $108 million or 3.4% to $3.28
billion in 1997 from $3.17 billion in 1996.
As shown in the table of average balance sheets, non-interest-bearing
demand deposits increased $50.0 million or 5.5% between 1996 and 1997. Factors
that contributed to this increase include the design and promotion of new small
business and personal checking account products and the new branch openings
during 1996 and 1997.
The table of average balance sheets also shows that average
interest-bearing deposits have increased $58 million or 2.5% between 1996 and
1997. Average savings, NOW and money market account deposits increased a net $48
million or 3.9% between 1996 and 1997. The success of recent campaigns to
promote a premium money market product first introduced in 1996 was primarily
responsible for this deposit growth. Total average money market account deposits
grew $75 million or 26% in 1997 as compared to 1996. Between 1996 and 1997,
average regular savings deposits decreased $14 million or 2.8%. Average NOW
account deposits were also lower in 1997 as compared to 1996, decreasing
approximately $12 million or 2.6%. A portion of the decreases in regular savings
and NOW account deposits is attributable to funds moving to the premium money
market product.
The time deposit category, which includes both core deposits and
certificates of deposit and other time deposits of $100,000 and over, has
remained relatively stable between 1996 and 1997, increasing $9.5 million or
0.9%. Within this category,
Page 10 of 64 Pages
core deposits decreased $41 million or 6.9% in 1997 when compared to 1996 while
non-core deposits increased $51 million or 11.6%.
The Company's short-term borrowings consist of purchases of federal
funds and sales of securities under repurchase agreements. Such borrowings are
both a source of funding for certain short-term lending activity as well as a
part of the Company's services to correspondent banks and other customers. The
Company's average short-term borrowings increased $41 million or 11% between
1996 and 1997. The Company has used short-term borrowings, particularly
repurchase agreements, to provide funds to support the growth in the loan
portfolio. The rise in short-term borrowings is also partly attributable to the
use of repurchase agreements in connection with an expansion of the Company's
cash management services. The Company's average short-term borrowing position,
net of short-term funds sold, was approximately $372 million in 1997 and $316
million in 1996, an increase of $56 million or 18%.
Investment in Securities
At December 31, 1997, the Company's total investment in securities was
$1.27 billion, a decrease of $206 million or 14% from the December 31, 1996
total of $1.47 billion.
The average total investment portfolio outstanding decreased $226
million or 14% between 1996 and 1997. Funds from investment maturities, in
particular U.S. Treasury securities, have been used to partially satisfy
increased loan demand in recent years. In both 1997 and 1996, maturities of U.S.
Treasury securities have also been reinvested in higher-yielding U.S. government
agency securities and mortgage-backed issues.
The weighted average maturity of the overall portfolio of securities
was 62 months at year end 1997 as compared to 42 months at year end 1996. The
weighted average taxable-equivalent portfolio yield was 6.68% at December 31,
1997, an increase of 36 basis points from 6.32% at December 31, 1996.
Securities classified as available for sale constituted approximately
8.1% of the total investment portfolio at year end 1997 and 14% as of year end
1996. These securities are reported at their estimated fair values in the
consolidated statements of condition. The net unrealized gain on available for
sale securities was $0.3 million at year end 1997 compared to an unrealized loss
of $0.2 million at 1996's year end. These gains and losses are reported, net of
tax, as a separate component of shareholders' equity for each period. The
remaining portfolio securities are classified as held to maturity and are
reported at amortized cost. The Company maintains no securities trading
portfolio.
At December 31, 1997, the Company held no investment in securities of a
single issuer, other than U.S. Treasury and U. S. government agency securities
and mortgage-backed securities issued or guaranteed by U. S. government
agencies, that exceeded 10% of its shareholders' equity. The Company maintains
no material investment or participation in financial instruments or agreements
whose value is linked to or derived from changes in the value of some underlying
asset or index. Such instruments or agreements include futures, forward
contracts, option contracts, interest-rate swap agreements, and other financial
arrangements with similar characteristics, and are commonly referred to as
derivatives.
Page 11 of 64 Pages
INVESTMENT IN SECURITIES
(dollars in thousands)
Book Value at December 31 1997 1996 1995
-------------------------------------------------
U S. Treasury securities:
Held to maturity...........................$ 300,260 $ 565,584 $ 815,588
Available for sale......................... 3,992 9,519 19,828
Securities of U.S. government agencies:
Held to maturity........................... 427,390 401,023 323,513
Available for sale......................... 18,028 55,005 89,513
Mortgage-backed securities:
Held to maturity........................... 299,612 146,295 58,321
Available for sale......................... 81,233 143,405 177,403
State and municipal securities:
Held to maturity........................... 131,818 146,237 138,765
Available for sale......................... - 1,072 1,074
Federal Reserve stock and other
corporate securities...................... 5,955 6,058 7,733
--------------------------------------------------
Total..............................$1,268,288 $1,474,198 $1,631,738
==================================================
DISTRIBUTION OF INVESTMENT MATURITIES AT DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Over One Over Five
One Year Through Through Over
and Less Five Years Ten Years Ten Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury securities............$180,232 6.21 % $120,028 6.82 % $ - - % $ - - % $300,260 6.45 %
U.S. government agency
securities......................... 34,386 5.88 302,230 6.46 87,751 6.75 3,023 4.52 427,390 6.46
Mortgage-backed securities(2)....... 2,109 6.91 58,899 6.42 133,885 6.64 104,719 6.70 299,612 6.62
State and municipal
securities(1)..................... 13,946 7.77 58,275 7.97 45,672 8.23 13,925 8.06 131,818 8.05
Equity securities(3)................ - - - - - - 5,955 - 5,955 -
Securities available for sale:(4)
U.S. Treasury securities............ 3,000 5.43 992 5.82 - - - - 3,992 5.53
U.S. government agency
securities......................... 3,494 4.69 1,657 6.99 2,803 7.98 10,074 7.28 18,028 6.86
Mortgage-backed securities(2)....... 11,919 5.24 48,821 6.61 1,043 6.09 19,450 6.59 81,233 6.40
(1) Tax exempt yields are expressed on a fully taxable equivalent basis.
(2) Distributed by contractual maturity without regard to repayment schedules or
projected prepayments.
(3) These securities have no stated maturities or guaranteed dividends.
(4) These securities are classified as available for sale before maturity.
The actual timing of any such sales, however, is not determinable at year
end.
Page 12 of 64 Pages
Asset Quality
Overall asset quality has shown significant improvement over the past
five years. Non-performing assets totalled $13.3 million at December 31, 1997, a
decrease of $2.7 million or 17% from $16.0 million at year end 1996. In the five
years since 1992 non-performing assets have fallen a total of approximately $161
million or 88%. Over this same period, loans internally classified as having
above-normal credit risk decreased approximately $161 million or 66% to $81
million or 3.1% of total loans at year end 1997. At December 31, 1997, the
classification totals were as follows: loans as to which there are serious
doubts as to full repayment, $6.4 million; substandard loans with well-defined
weaknesses that, if not corrected, would likely result in some loss, $44.4
million; and loans with risk characteristics that indicate a potential weakness
and that warrant special attention, $30.2 million.
The Company recovered $11.4 million of previously charged-off loans in
1997 and $10.8 million in 1996. In 1997, the Company identified $8.2 million of
loans to be charged off as uncollectible against the reserve for possible loan
losses as compared to $7.3 million of charge-offs in 1996. In each period the
Company was in a net recovery position in excess of $3 million. The increase in
charge-offs in each of these periods as compared with the two previous years can
be attributed mainly to certain credit quality issues that developed with
respect to a segment of the portfolio acquired in the merger with one of the
pooled institutions as well as to the downgrade in the credit rating of a few
isolated commercial customers. Management has addressed the issues identified in
the acquired portfolio and has assessed the potential for additional losses in
this portfolio and with the troubled commercial customers in evaluating the
adequacy of the reserve for possible loan losses.
The reserve for possible loan losses is maintained at a level believed
by management to be adequate to absorb potential losses in the portfolio. In the
early 1990s, the economic conditions in the Company's primary market areas
stabilized and began to improve after a period of severe decline, and management
began implementing a program to strengthen its policies and procedures related
to the measurement and control of credit risk in its loan portfolio. In 1993,
the improvement in the economy and the success of management's program led to a
dramatic reduction in the Company's measures of overall loan credit risk and
allowed management to authorize a $59 million reduction in the reserve for
possible loan losses. With continued economic strength, continued improvements
in overall measures of asset quality, and significant net recoveries in the
following years, the Company was able to return $26 million of the reserve to
income in 1994, $9.0 million in 1995 and $4.4 million in 1996.
A portion of the $2.8 million net reserve reduction in 1997 reflected
the reversal of excess reserves that had previously been established to cover a
potential settlement of claims by the U. S. Department of Education ("DOE")
stemming from the Company's participation in guaranteed student loan programs.
As discussed below, a tentative settlement with the DOE has been reached. An
increase in non-interest expense related to this settlement substantially offset
the earnings impact of the reserve reduction.
The reserve for possible loan losses represented 475% of nonaccrual
loans at December 31, 1997 and 1.6% of total loans on that date. At year end
1996 this reserve coverage was 467% of nonaccrual loans and 1.9% of total loans.
During 1997, the Company disposed of OREO properties with a carrying
value at the time of sale totalling approximately $2.3 million. The value of
properties acquired in settlement of loan claims during the year was $0.8
million.
Page 13 of 64 Pages
NON-PERFORMING ASSETS AT DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
Loans accounted for on
a nonaccrual basis.................$ 9,005 $ 9,079 $ 11,495 $ 18,544 $ 36,953
Restructured loans.................. 1,560 2,375 2,101 2,444 877
----------------------------------------------------------------------------
Total non-performing loans...... 10,565 11,454 13,596 20,988 37,830
Other real estate owned............. 2,661 4,584 7,829 7,746 19,005
Other foreclosed assets............. 49 - - 6 174
----------------------------------------------------------------------------
Total non-performing assets....$ 13,275 $ 16,038 $ 21,425 $ 28,740 $ 57,009
============================================================================
Loans 90 days past due still
accruing...........................$ 1,394 $ 2,464 $ 1,077 $ 1,015 $ 2,268
============================================================================
Non-performing assets as a
percentage of:
Total assets.................. 0.3% 0.4% 0.5% 0.8% 1.5%
Total loans and
foreclosed assets.......... 0.5% 0.7% 1.2% 2.0% 4.4%
Whitney National Bank has several property interests which were
acquired through routine banking transactions generally prior to 1933 and which
are recorded in its financial records at a nominal value. Management continually
investigates ways to maximize the return on these assets. Operating income from
these property interests, primarily from oil and gas royalties and real estate
operations, was $3.0 million in 1997, including approximately $2.6 million from
sales of land near Berwick, Louisiana and in Livingston Parish, Louisiana. This
compares with $0.9 million of operating income in 1996 and $0.1 million in 1995.
Future dispositions may result in the recognition of substantial gains.
The Company has not extended any credit in connection with what would
be defined under regulatory guidelines as highly leveraged transactions, nor has
it acquired any investment securities arising from such transactions. The
Company's foreign lending and investing activities are currently immaterial.
Note 4 to the consolidated financial statements discusses credit concentrations
in the loan portfolio.
Page 14 of 64 Pages
SUMMARY OF ACTIVITY IN THE RESERVE FOR POSSIBLE LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands)
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
Reserve for possible loan
losses at beginning of
period $42,411 $43,341 $41,024 $50,965 $104,745
Reserves provided through
acquisitions - - 1,772 - -
Loans charged off during period:
Commercial, financial, and
agricultural loans $4,687 $3,931 $3,324 $2,426 $5,768
Real estate loans 408 73 151 639 934
Loans to individuals 2,022 1,417 1,440 1,777 1,731
Lease financing receivables 1,085 1,849 200 132 301
--------------------------------------------------------------------------------
Total $8,202 $7,270 $5,115 $4,974 $8,734
--------------------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial, financial, and
agricultural loans $6,005 $3,771 $5,064 $5,317 $8,120
Real estate loans 3,409 5,423 6,937 12,245 3,958
Loans to individuals 1,994 1,558 2,561 3,194 1,579
Lease financing receivables - 23 58 70 144
--------------------------------------------------------------------------------
Total $11,408 $10,775 $14,620 $20,826 $13,801
--------------------------------------------------------------------------------
Net loans recovered (charged off)
during period $3,206 $3,505 $9,505 $15,852 $5,067
Additions to (reduction in)
reserve for possible loan
losses charged (credited)
to operations (2,812) (4,435) (8,960) (25,793) (58,847)
--------------------------------------------------------------------------------
Reserve for possible loan
losses at end of period $42,805 $42,411 $43,341 $41,024 $50,965
================================================================================
Reserve as a percentage of:
Nonaccrual loans 475% 467% 377% 221% 138%
Total non-performing loans 405% 370% 319% 195% 135%
Total loans 1.6% 1.9% 2.4% 2.9% 4.0%
Ratio of net recoveries
to average loans outstanding 0.1% 0.2% 0.6% 1.2% 0.4%
Page 15 of 64 Pages
ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------
% of % of % of % of % of
% of Total % of Total % of Total % of Total % of Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
-----------------------------------------------------------------------------------------
Commercial,
financial and
agricultural
loans 42.7% 45.0% 43.2% 45.1% 42.1% 47.2% 45.5% 49.3% 45.2% 53.7%
Real estate
loans -
commercial
and other 28.5% 29.7% 27.0% 29.4% 23.5% 27.8% 27.7% 27.0% 22.5% 25.5%
Real estate
loans - retail
mortgage 15.2% 16.5% 13.5% 15.5% 10.9% 13.9% 9.7% 11.4% 6.0% 9.9%
Loans to
individuals 8.5% 8.6% 6.3% 9.5% 7.5% 10.4% 9.1% 11.6% 5.9% 10.3%
Lease financing
receivables 0.7% 0.2% 2.5% 0.5% 2.0% 0.7% 0.5% 0.7% 0.4% 0.6%
Unallocated 4.4% - 7.5% - 14.0% - 7.5% - 20.0% -
-----------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========================================================================================
Bank Premises and Equipment
The net investment in bank premises and equipment at December 31, 1997
of $138 million represents a $19 million or 16% increase from the level at year
end 1996. This follows a $24 million or 25% increase between year end 1995 and
1996. Beginning in 1995 and continuing in 1996 and 1997, the Company accelerated
the expansion of its branch and automated teller machine networks, the
renovation or replacement of existing branch facilities, and the enhancement of
its facilities for its support operations. Over the last two years, the Company
has completed or begun construction on thirteen new branch locations throughout
its market area, including a new administrative headquarters for the Alabama
region, and opened a new operations center. During 1997 the Company also
substantially completed the upgrade of its branch delivery system and its office
automation systems.
Capital Adequacy
The Company's risk-based regulatory capital ratios decreased between
December 31, 1996 and December 31, 1997, although all ratios remained well in
excess of the minimum requirements. The decreases are consistent with the growth
between these periods in total risk-weighted assets. Loan growth that was partly
funded by maturities of generally lower risk-weighted investment securities was
the main factor contributing to the rise in total risk-weighted assets.
The regulatory capital ratios for the Company and Whitney National
Bank, its only significant banking subsidiary, are shown as follows compared to
the minimums that are currently required under capital adequacy standards
imposed by their regulators and those that the Bank must maintain to be eligible
for a "well capitalized" classification under the prompt corrective action
framework. Whitney National Bank has been classified as "well capitalized" in
the most recent classification notice received from its regulatory agency. The
merger of the Company's multi-state banking subsidiaries into Whitney National
Bank in January 1998 should not cause a change in this classification.
Regulatory banking agencies assess an institution's exposure to
interest rate risk as part of the overall procedures performed to evaluate an
institution's capital adequacy, but these agencies have not yet incorporated a
specific measure of interest rate risk into an institution's required level of
regulatory capital. Management believes that implementation of a specific
capital charge for interest rate risk will not have a significant impact on the
Company's or the Bank's regulatory capital requirements.
Page 16 of 64 Pages
REGULATORY CAPITAL RATIOS AND RISK-WEIGHTED ASSETS
- ------------------------------------------------------------------------------------------------------
(dollars in thousands)
December 31, Minimum Minimum For
Capital Adequacy "Well-Capitalized"
1997 1996 Standard Classification
- ------------------------------------------------------------------------------------------------------
Tier 1 risk-based capital:
Company............................... 14.84% 14.96% 4.00% n/a
Whitney National Bank................. 14.07% 14.39% 4.00% 6.00%
Total risk-based capital:
Company............................... 16.10% 16.21% 8.00% n/a
Whitney National Bank................. 15.32% 15.64% 8.00% 10.00%
Tier 1 leverage capital:
Company............................... 10.72% 10.01% 4.00% n/a
Whitney National Bank................. 9.76% 9.31% 4.00% 5.00%
Total risk-weighted assets:
Company...............................$3,099,425 $2,808,272
Whitney National Bank.................$2,645,708 $2,404,424
RESULTS OF OPERATIONS
Net Interest Income
Taxable-equivalent net interest income increased $15.9 million or 9.2%
in 1997 as compared to 1996, and the net interest margin increased to 4.97% from
4.78%. In 1996 net interest income increased $6.9 million or 4.1% over 1995 as
the net interest margin decreased to 4.78% from 4.98%. The factors which
contributed to these changes are detailed in the following tables analyzing
changes in interest income and expense.
Taxable-equivalent loan interest income increased $31.8 million or 18%
in 1997 as compared to 1996. This increase was driven by the $422 million growth
in average loans outstanding between 1996 and 1997. The increase in interest
income from loan growth was partially offset by the impact of a 23 basis point
decrease in effective loan yields between these periods, from 8.80% in 1996 to
8.57% in 1997. The decrease in the effective loan yield reflects in part a lower
level of recoveries of prior-period interest recognized as income in 1997
compared to 1996. Market interest rates were relatively stable during 1996 and
into 1997, moderating somewhat toward the end of 1997. This rate environment,
coupled with a decline in the market rates for credit extensions to high-quality
corporate borrowers during the past year, also contributed to the decrease in
effective loan yields.
Comparing 1996 and 1995, taxable-equivalent loan interest income
increased $25.6 million or 17%, an increase that was also the result of loan
growth which on average totalled $413 million between these periods. This
growth-driven increase in income was again partly offset by the impact of a
decline in effective loan yields which decreased 69 basis points between these
periods, from 9.49% to 8.80%. Much of this decrease resulted from the repricing
of variable and short-term fixed rate loans and the addition of new credits as
well as the expansion of existing lending facilities in a moderating interest
rate environment that prevailed throughout 1995 and early 1996. Cash basis and
cost-recovery interest income recognized in 1996 from nonaccrual loans and loans
previously in workout status was also lower than that recognized in 1995. The
competitive market also placed some pressure on the pricing of loans to new and
existing customers.
In 1997 taxable-equivalent interest income on investment securities
decreased $10.2 million or 10.3% when compared with 1996. This follows a
decrease in investment income of $2.5 million or 2.5% in 1996 compared with
1995. These decreases are consistent with reductions in the average investment
in securities over this period, which totalled $226 million or 14.1% between
1996 and 1997 and $98 million or 5.7% between 1995 and 1996. The effective yield
on the investment portfolio increased 27 basis points in 1997 to 6.44% from
6.17% in 1996. The 1996 effective yield was 21 basis points above the 1995 yield
of 5.96%. These increases are primarily the result of higher yields
Page 17 of 64 Pages
obtained on reinvestment and a shift in the portfolio mix toward
mortgage-backed issues, U. S. government agency securities and state and
municipal obligations and away from U. S. Treasury securities. After moderating
in 1995 and into 1996, market interest rates have been relatively stable. The
Company, however, has structured the maturities of its investment portfolio in a
way that reduces the immediate sensitivity of its effective yield to changing
market interest rates.
The net increase in total taxable-equivalent interest income between
1997 and 1996 was $20.8 million or 7.6% on growth in total earning assets of
$181 million or 5.0%. The overall effective earning-asset yield in 1997
increased 19 basis points to 7.78% from 7.59% in 1996. Total taxable-equivalent
interest income in 1996 was $21.1 million or 8.3% higher than in 1995, as total
earning assets grew $287 million or 8.6%. The overall effective earning-asset
yield in 1996 was 7.59%, almost unchanged from 7.61% in 1995.
Interest expense increased $4.9 million or 4.8% in 1997 as compared to
1996. This increase reflects mainly the impact of the growth in average total
interest-bearing liabilities, including both deposits and short-term borrowings,
between these periods. Average short-term borrowings increased $41 million or
11% in 1997 as compared to 1996. The cost of these borrowed funds was 4.99% in
1997, an increase of 7 basis points over 1996. The higher cost of these funds in
1997 reflects in part the 25 basis point increase in the federal funds rate at
the end of 1997's first quarter.
Growth in average interest-bearing deposits of $58 million or 2.5% also
contributed to the overall increase in interest expense in 1997. As discussed
earlier, this growth was primarily a function of the success of a premium money
market account product. Despite this growth, the overall cost of funds rate for
interest-bearing deposits of 3.73% in 1997 was little changed from the 3.71%
rate in 1996.
Interest expense increased approximately $14.3 million or 16% in 1996
as compared to 1995. Approximately $13 million of this increase can be
attributed to the $244 million increase in average interest-bearing liabilities,
in particular short-term borrowings, between these periods. The remaining
increase reflects mainly the impact of the greater emphasis on short-term
borrowings as a funding source in 1996 and a moderate shift in the deposit mix
toward time deposits. The overall cost of funds rate on interest-bearing
liabilities was 3.88% in 1996 and 3.68% in 1995, an increase of 20 basis points.
Page 18 of 64 Pages
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARINGS LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
1997 1996 1995
---------------------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------------------------------------------
ASSETS
Loans
(tax equivalent) (1),(2).... $2,395,496 $205,412 8.57 % $1,973,236 $173,636 8.80 % $1,560,108 $148,027 9.49 %
---------------------------------------------------------------------------------------------------
U. S. Treasury securities..... $472,566 $28,347 6.00 % $719,068 $40,752 5.67 % $952,606 $52,681 5.53 %
U.S. government agency
securities.................. 460,171 29,346 6.38 % 459,704 28,346 6.17 % 402,251 23,859 5.93 %
Mortgage-backed securities ... 296,606 19,079 6.43 % 277,678 17,864 6.43 % 186,306 12,346 6.63 %
State and municipal securities
(tax equivalent) (1)....... 138,384 11,413 8.25 % 138,120 11,375 8.24 % 134,347 11,048 8.22 %
Federal reserve stock and
other corporate securities.. 6,804 391 5.75 % 6,342 389 6.13 % 23,068 1,296 5.62 %
---------------------------------------------------------------------------------------------------
Total investment in
securities (1),(3)........ $1,374,531 $88,576 6.44 % $1,600,912 $98,726 6.17 % $1,698,578 $101,230 5.96 %
---------------------------------------------------------------------------------------------------
Federal funds sold and
short-term deposits......... 36,423 2,040 5.60 % 51,608 2,869 5.56 % 80,069 4,834 6.04 %
---------------------------------------------------------------------------------------------------
Total interest-earning
assets.................... $3,806,450 $296,028 7.78 % $3,625,756 $275,231 7.59 % $3,338,755 $254,091 7.61 %
---------------------------------------------------------------------------------------------------
Cash and due from financial
institutions................ 202,418 210,660 212,505
Bank premises and
equipment, net.............. 127,743 108,272 86,812
Other real estate owned, net.. 3,863 6,076 7,859
Other assets.................. 82,605 89,017 89,641
Reserve for possible
loan losses................. (42,853) (45,926) (44,109)
------------ ------------ ------------
Total assets................ $4,180,226 $3,993,855 $3,691,463
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings deposits.............. $480,625 $12,628 2.63 % $494,590 $13,311 2.69 % $534,352 $14,530 2.72 %
NOW account and MMDA deposits. 803,122 20,721 2.58 % 740,981 16,849 2.27 % 736,407 17,111 2.32 %
Time deposits................. 1,038,726 53,214 5.12 % 1,029,194 53,802 5.23 % 921,069 46,055 5.00 %
---------------------------------------------------------------------------------------------------
Total interest-bearing
deposits.................. $2,322,473 $86,563 3.73 % $2,264,765 $83,962 3.71 % $2,191,828 $77,696 3.54 %
---------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements....... 408,757 20,384 4.99 % 367,528 18,090 4.92 % 196,122 10,101 5.15 %
---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities................. $2,731,230 $106,947 3.92 % $2,632,293 $102,052 3.88 % $2,387,950 $87,797 3.68 %
---------------------------------------------------------------------------------------------------
Demand deposits,
non-interest-bearing........ 955,407 905,327 $892,593
Other liabilities............. 34,631 32,308 31,109
Shareholders' equity.......... 458,958 423,927 379,811
----------- ----------- -----------
Total liabilities and
shareholders' equity........ $4,180,226 $3,993,855 $3,691,463
=========== =========== ===========
Net interest income/margin
(tax equivalent) (1)..... $189,081 4.97 % $173,179 4.78 % $166,294 4.98 %
========= ====== ========= ====== ========= ======
(1) Tax equivalent amounts are calculated using a marginal federal income tax rate of 35% for all years.
(2) Average balance includes nonaccruing loans $8,858 ,$10,548 and $15,614, respectively, in 1997, 1996 and 1995.
(3) Average balance excludes unrealized gain or loss on securities available for sale.
Page 19 of 64 Pages
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
VOLUME AND YIELD/RATE VARIANCE
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
1997 COMPARED TO 1996 1996 COMPARED TO 1995
-------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
YIELD/ YIELD/
VOLUME RATE NET VOLUME RATE NET
-------------------------------------------------------------------------
INTEREST EARNED ON
Loans (tax equivalent) (1)(2)................ $ 36,080 $ (4,304) $ 31,776 $ 35,286 $ (9,677) $ 25,609
U.S. Treasury securities..................... $ (14,954) $ 2,549 $ (12,405) $ (13,271) $ 1,342 $ (11,929)
U.S. government agency securities............ 29 971 1,000 3,513 974 4,487
Mortgage-backed securities .................. 1,218 (3) 1,215 5,867 (349) 5,518
State and municipal
securities (tax equivalent) (1)........ 22 16 38 311 16 327
Federal Reserve stock and
other corporate securities.............. 15 (13) 2 (1,038) 131 (907)
-------------------------------------------------------------------------
Total investment in securities............. $ (13,670) $ 3,520 $ (10,150) $ (4,618) $ 2,114 $ (2,504)
-------------------------------------------------------------------------
Federal funds sold and short-term deposits... (851) 22 (829) (1,607) (358) (1,965)
-------------------------------------------------------------------------
Total interest-earning assets.............. $ 21,559 $ (762) $ 20,797 $ 29,061 $ (7,921) $ 21,140
-------------------------------------------------------------------------
INTEREST ACCRUED ON
Savings account deposits..................... $ (371) (312) $ (683) $ (1,071) $ (148) $ (1,219)
NOW account and MMDA deposits................ 1,486 2,386 3,872 107 (369) (262)
Time deposits................................ 507 (1,095) (588) 5,584 2,163 7,747
-------------------------------------------------------------------------
Total interest-bearing deposits............ $ 1,622 $ 979 $ 2,601 $ 4,620 $ 1,646 $ 6,266
-------------------------------------------------------------------------
Federal funds purchased and securities sold
repurchase agreements.................... 2,053 241 2,294 8,416 (427) 7,989
-------------------------------------------------------------------------
Total interest-bearing liabilities......... $ 3,675 $ 1,220 $ 4,895 $ 13,036 $ 1,219 $ 14,255
-------------------------------------------------------------------------
Net interest income (tax equivalent) (1)... $ 17,884 $ (1,982) $ 15,902 $ 16,025 $ (9,140) $ 6,885
=========================================================================
(1) Tax equivalent amounts are calculated using a marginal federal income tax rate of 35% for all years.
(2) Interest recognized on a cash basis on nonaccruing loans and prior cost recovery interest
currently recognized on nonaccruing and certain accruing loans was $1,645, $3,729, and $6,505 in 1997,
1996 and 1995 respectively.
Page 20 of 64 Pages
Other Income and Expense
Non-interest income increased $9.2 million or 22.0% in 1997 when
compared to 1996. Net gains on sales or other dispositions of foreclosed assets
totalled $6.2 million in 1997 and $2.8 million in 1996. Excluding this income,
non-interest income was $44.8 million in 1997 and $39.0 million in 1996, an
increase of $5.8 million or 14.8%. Between 1995 and 1996, non-interest income,
again adjusted to exclude net gains from foreclosed assets, increased $2.1
million or 5.73% from $36.9 million in 1995.
Income from service charges on deposits accounts, which accounted for
approximately half of recurring non-interest income in 1997, 1996 and 1995,
increased 8.1% in 1997 compared to 1996. This increase can be attributed mainly
to changes in the rate schedule for certain deposit services. Deposit growth
from the introduction of new products also contributed to the increase in
deposit service charge income in 1997. Between 1995 and 1996 there was little
change in this income category.
Fee income from credit card related operations increased 25.9% in 1997
compared to 1996, after increasing 12.5% in 1996 compared to 1995. These
improvements reflect both economic conditions as well as successful marketing
efforts. The impact of successful marketing is also reflected in the
year-to-year increases in trust services income of 17.8% in 1997 and 10.1% in
1996. Trust services income has also benefited from the strong performance of
the financial markets in recent years.
The Company has been expanding its automated teller network for several
years now, through both remote placements as well as installations at existing
and newly constructed branch facilities and the facilities of merged banking
operations. Fees generated from ATM operations registered solid increases of
29.1% in 1997 and 51.2% in 1996. During 1997, the Company also recognized
approximately $0.5 million of income from the purchase of its interest in a
regional ATM network service that was acquired by another service. This income
is included with other operating income in the accompanying table of
non-interest income.
Non-interest operating expenses, excluding merger-related expenses,
were $156 million in 1997, an increase of $11.4 million or 7.9% over 1996's
total of $145 million. Between 1995 and 1996, the increase in non-interest
expenses before merger-related costs was $8.0 million or 5.8% from $137 million
in 1995.
As is shown in the table of non-interest expense, salaries and employee
benefits expense increased $6.3 million or 8.5% in 1997 as compared to 1996.
Approximately $0.9 million of this increase is related to the cost of staffing
the additional banking locations opened in 1996 and 1997. Executive incentive
compensation increased approximately $1.9 million in 1997 compared to 1996,
primarily as a result of a $1.3 million increase in stock-based incentive
compensation. The total value of 1997 employee restricted stock grants was $4.6
million, including a first time grant to non-executive employees valued at $2.1
million, compared to a total grant value of $1.6 million in 1996. The increase
in stock-based compensation expense in 1997 was also influenced by an earlier
restricted stock grant date for executives in 1997 and a shortening of the
restriction period and corresponding amortization period beginning in 1996. The
remaining increase in salaries and employee benefits expense in 1997 of
approximately $3.5 million or 4.8% is attributable to regular merit increases,
other staff additions and to the net change in the cost of various employee
benefit and incentive programs.
In 1996, salaries and benefits expense increased $3.2 million or 4.5%
as compared to 1995. Approximately $0.4 million of this increase was related to
the Alabama bank acquisition in 1995. Merit raises, staff additions and changes
in the net periodic expense of benefit programs all factored into the remaining
increase of $2.8 million or 3.9%.
Occupancy expense increased $0.9 million or 8.1% in 1997 compared to
1996 following an increase of $1.9 million or 20.2% in 1996. The increase in
expense over this period was primarily the result of both the expansion of the
Company's branch network and the ongoing program to upgrade the appearance and
functionality of its administrative offices, operations facilities, and a
significant number of the Company's existing branches. Since the beginning of
1996 the company opened or began construction on thirteen new branch locations,
including a regional administrative headquarters, completed the renovation of
several additional branch locations as well as the main office branch facility,
and moved into its new operations center in suburban New Orleans.
Page 21 of 64 Pages
The expansion of the Company's branch and administrative facilities and
the opening of the new operations center also contributed to the increase in the
expense of furnishings and equipment, including data processing systems, since
1995. This expense category increased $1.4 million or 10.5% in 1997 and $2.1
million or 17.8% in 1996. These increases were also related to the
implementation of various enhancements in the Company's data processing and
communications systems, which in 1997 included an investment of approximately
$11 million to replace and upgrade the branch delivery system and to
substantially complete the installation of a standardized office automation
network. Certain additional phases to these projects will be completed in 1998.
These enhancements impact both customer service capabilities as well as internal
bank operations. An additional factor behind the increases in this expense
category is the continuing expansion of the Company's ATM network, which has
grown from fewer than ten locations in 1990 to well over one hundred today. Also
contributing to the increase in 1996 was approximately $0.2 million in
non-recurring data processing equipment expense associated with the relocation
to the new operations facility.
The costs of operating the Company's growing branch and ATM networks
and to establish and maintain communication links throughout the Company's
expanded service area are reflected in increases in various other expense
categories during 1997 and 1996. These include security and other services,
telecommunications and postage, and stationery and supplies.
Credit card operating expenses for 1997 and 1996 grew at rates that are
generally consistent with the growth in revenue from these operations as
discussed above.
Fluctuations in taxes and insurance expense, other than on real estate,
in recent years have mainly followed the fluctuations in the state ad valorem
tax assessment that is based on a calculated estimate of the Company's value.
Changes in the level of prior year earnings and equity and in the market
conditions for bank stocks in general all impact the annual assessment
calculations.
Legal and other professional services decreased $1.5 million or 29%
between 1996 and 1997 after increasing approximately $0.8 million or 18.0%
between 1995 and 1996. These fluctuations reflect the general level of corporate
legal activity in each of these periods and are not indicative of any particular
trend in this expense category.
Advertising expense increased $0.6 million or 21.9% in 1997 after a
small rise of 2.3% in 1996. These increases were the result of higher
advertising and promotional costs associated with recent mergers and with the
introduction of certain new deposit products.
During 1995 the FDIC dramatically reduced the premium rate charged for
deposit insurance. This led to a reduction in this expense category of $3.5
million or 81.2% in 1996 as compared to 1995. The increase in deposit insurance
expense in 1997 related mainly to the introduction of an assessment on all
insured institutions to finance government bonds issued in connection with the
bailout of the savings and loan industry.
As disclosed in the 1996 annual report, the Company, in 1992,
discovered and reported to the United States Department of Education ("DOE")
that in earlier years Whitney National Bank had not in all cases followed the
collections procedures required by the guaranteed student loan program. Upon
discovery, adequate reserves were established to cover any potential settlement,
and internal procedures were revised to assure future compliance with the
program. In 1997 the Company reached a tentative settlement agreement with the
DOE and expensed approximately $1.2 million as a provision for losses on other
problem assets and recorded related income tax effects which were substantially
offset by the reversal of excess reserves for possible loan losses also related
to this settlement, as was discussed earlier. As a result, the impact of
recording this tentative settlement was not material.
The Company and its merger candidates incur various non-recurring costs
to complete merger transactions and to consolidate operations subsequent to a
merger. Such merger-related costs, which are expensed for business combinations
accounted for as poolings-of-interests, include change in control payments and
severance or retention bonuses for management and employees of the merged
entity, investment banker fees, fees for various professional services,
including legal, audit and system conversion consulting services, and losses on
the disposition of obsolete facilities and equipment and the cancellation of
contracts. Total merger-related expenses will vary with each transaction.
Page 22 of 64 Pages
Non-interest expense in 1997 includes costs incurred in connection with
the Company's efforts to ensure that its operations will not be materially
affected by the use of the year 2000 in its computer systems or in the systems
of its suppliers and customers. The Company expects to continue incurring
expenses related to this project in 1998. These costs have not been material and
are not expected to be material in the future. In 1997 a company-wide task force
was established to review all Company operations and manage its year 2000
issues. The task force's plan is to have year 2000 issues satisfactorily
addressed and substantially complete by the end of 1998. This date meets all
current regulatory guidelines established for this project. In addition, the
Company is discussing year 2000 issues and their potential impact on business
operations with many of its suppliers and customers.
NON-INTEREST INCOME
1997 % Change 1996 % Change 1995
-------------------------------------------------------------
Service charges on deposit accounts............... $ 22,244 8.1% $ 20,585 0.9% $ 20,400
Credit card income................................ 7,412 25.9 5,888 12.5 5,233
Trust service fees................................ 4,910 17.8 4,168 10.1 3,787
International services income..................... 1,821 (0.3) 1,826 (5.9) 1,941
Investment services income........................ 1,035 (4.2) 1,080 16.5 927
ATM fees.......................................... 2,939 29.1 2,277 51.2 1,506
Other fees and charges............................ 2,266 1.2 2,239 (6.2) 2,388
Net gains on sales and other
dispositions of foreclosed assets................ 6,213 123.9 2,775 117.3 1,277
Other operating income............................ 2,185 127.6 960 31.7 729
-------------------------------------------------------------
Total other non-interest income................... $ 51,025 22.1% $ 41,798 9.5% $ 38,188
Gain on sale of securities........................ 10 (47.4) 19 216.7 6
-------------------------------------------------------------
Total non-interest income........................ $ 51,035 22.0% $ 41,817 9.5% $ 38,194
=============================================================
NON-INTEREST EXPENSE
1997 % Change 1996 % Change 1995
-------------------------------------------------------------
Salaries and benefits............................. $ 80,576 8.5% $ 74,261 4.5% $ 71,097
Occupancy of bank premises, net................... 12,285 8.1 11,368 20.2 9,458
Furnishings and equipment, including
data processing systems.......................... 15,256 10.5 13,811 17.8 11,726
Security and other outside services............... 5,589 8.2 5,164 23.1 4,195
Credit card processing services................... 5,476 26.3 4,337 14.2 3,797
Communications and postage........................ 5,448 13.1 4,817 20.7 3,991
Taxes and insurance, other than real estate....... 5,097 1.9 5,000 (2.6) 5,134
Stationery and supplies........................... 3,809 3.4 3,684 17.7 3,129
Legal and other professional services............. 3,598 (29.0) 5,064 18.0 4,291
Advertising....................................... 3,199 21.9 2,625 2.3 2,565
Amortization of intangible assets................. 2,348 (16.2) 2,802 (3.0) 2,888
Deposit insurance and regulatory fees............. 994 24.4 799 (81.2) 4,259
OREO maintenance and operations, net.............. 228 (71.4) 798 138.9 334
Provision for losses on OREO
and other problem assets........................ 1,474 282.9 385 342.5 87
Other operating expense........................... 10,983 9.3 10,046 (0.1) 10,054
-------------------------------------------------------------
Non-interest expense before
merger-related expenses....................... $ 156,360 7.9% $ 144,961 5.8% $ 137,005
Merger-related expenses........................... 3,270 (22.6) 4,226 - -
-------------------------------------------------------------
Total non-interest expense........................ $ 159,630 7.0% $ 149,187 8.9% $ 137,005
=============================================================
Page 23 of 64 Pages
Income Taxes
The Company provided for income taxes at an overall effective rate of
33.6% in 1997, up from a 32.2% rate in 1996 and a 31.6% rate in 1995. The
effective rates in each period differ from the statutory rate of 35% primarily
because of the tax exempt income earned on investments in state and municipal
bonds. The higher effective rates in 1997 and 1996 as compared to 1995 reflect
mainly the impact of non-deductible merger-related expenses and, in 1997, the
impact of the adjustment related to the tentative settlement with the DOE
discussed above.
Accounting Changes
During 1997 the FASB issued a statement that revised and simplified the
standards for the calculation of earnings per share ("EPS"). Under these
standards, which became effective for the period ended December 31, 1997, the
Company reports two measures of EPS. The more basic EPS measure is calculated by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the applicable period, without adjustment for
potential common shares outstanding in the form of options, warrants,
convertible securities or contingent stock agreements. The second measure of EPS
incorporates the dilutive effect of potential common shares by increasing the
number of common shares outstanding for the basic calculation by the number of
additional shares that would have been outstanding if the dilutive potential
common shares had been issued, all as determined using the treasury stock method
where appropriate. The new standards have been applied to the calculation of EPS
for all periods presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income, which encompasses net income and all other
changes in a company's equity other than from transactions with the company's
owners. SFAS No. 131 establishes standards for reporting information about a
company's operating segments and requires that reportable segments be identified
based on how management organizes the company's operations and related financial
information for decision-making purposes and performance assessment. The
provisions of SFAS No. 130 and 131 are effective for 1998. Adoption of these
standards will result in some changes in the financial statement presentation to
reflect comprehensive income, but will not have an effect on the Company's
financial position or results of operations.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in June 1996, mainly to
provide consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings, and it established
measurement, reporting and disclosure standards with respect to the assets and
liabilities that are obtained or incurred in such transfers. SFAS No. 125 was
generally effective for transfers, servicing and extinguishments occurring after
December 31, 1996, although application of certain provisions of the statement
have been delayed to 1998. Adoption of SFAS No. 125 with respect to transfer
transactions or servicing activities currently engaged in by the Company did not
result in a material impact on its financial position or results of operations.
Forward Looking Statements
Certain statements in this annual report to shareholders regarding
future expectations may be regarded as "forward-looking statements" within the
meaning of the Securities Litigation Reform Act. Although the Company believes
that its expectations are based on reasonable assumptions, it can give no
assurance that its goals will be achieved. Important factors that could cause
actual results to differ materially from those forward-looking statements
include the timing and extent of changes in interest rates, actions of
government regulators and other economic factors.
ASSET/LIABILITY MANAGEMENT
The asset/liability management process has as its focus the development
and implementation of strategies in the funding and deployment of the Company's
financial resources which are expected to maximize soundness and profitability
over time. These strategies reflect the goals set by the Company for capital
adequacy, liquidity, and the acceptable levels of risk established in Company
policies.
Page 24 of 64 Pages
Interest Rate Risk/Interest Rate Sensitivity
The Company's financial assets and liabilities are subject to scheduled
and unscheduled repricing opportunities over time. Both the Company's potential
for generating net interest income and the current market values of its
financial assets and liabilities depend in part upon the prevailing levels of
market interest rates when these repricing opportunities arise. Interest rate
risk is a measure of this potential change in earnings ability and market values
as interest rates change. As part of the asset/liability management process the
Company uses a variety of tools, including an earnings simulation model, to
measure interest rate risk and to evaluate the impact of possible changes in
rates on its internal strategies.
The interest rate sensitivity gap analysis shown in the accompanying
table compares the volume of repricing assets against repricing liabilities over
time. This analysis is a relatively straightforward tool which is useful mainly
in highlighting significant short-term repricing volume mismatches. The table
presents the rate sensitivity gap analysis at December 31, 1997. The interest
rates on a substantial portion of the outstanding commercial loans vary with
changes in the Banks' prime lending rates or the prime rates of certain
money-center banks. These loans are assigned to the earliest repricing period in
the rate sensitivity analysis. A sizable portion of loans shown in the analysis
as repricing after one year is made up of fixed-rate real estate loans.
Certain interest-bearing deposit funding sources, such as savings, NOW
and money market account deposits, have characteristics of both demand deposits
and deposits made for investment return purposes. Although these deposits are
technically subject to immediate repricing, historical customer behavior
indicates that their rate-sensitivity is significantly less. In preparing the
analysis, these deposits are allocated among the repricing periods in a manner
that reflects expected customer behavior so as to present a more meaningful
point-in-time estimate of short-term asset/liability repricing mismatches. In
the twelve-month period from December 31, 1997, the analysis shows that the
Company is in a moderately asset-sensitive position on a cumulative basis, which
indicates that the Company's net interest margin would benefit somewhat from a
near-term increase in market interest rates but would suffer somewhat in a
declining interest rate market.
Recognizing the limitations of the static rate sensitivity gap
analysis, the Company uses the earnings simulation model to more accurately
forecast how its net interest income and net income would change in response to
changes in market interest rates. The simulation model incorporates management's
expectations regarding loan demand, deposit product preferences, pricing and
funds availability, prepayment rates, and the spread of rates between different
financial instruments, among other factors. Interest rate change scenarios of
plus and minus 100, 200 and 300 basis points are run in the model against the
Company's balance sheet and the results of these simulations show the impact on
the Company's future earnings and on the discounted cash value of its balance
sheet. Management has established policy limits which are used to monitor the
results of these tests. Should these simulations yield changes that are not
within limits, management would evaluate the desirability of altering the loan
and deposit portfolios of the Company or of taking other steps to return the
Company to policy limits. The simulations run at December 31, 1997 yield results
that were all within policy limits and showed no material impact on earnings or
net asset values. These simulated results also did not indicate any significant
negative impact on the Company's liquidity position.
Page 25 of 64 Pages
INTEREST RATE SENSITIVITY
December 31, 1997
(dollars in millions)
TIME TO MATURITY OR NEXT REPRICING
--------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1 THROUGH OVER 5
DAYS DAYS DAYS DAYS 5 YEARS YEARS TOTAL
--------------------------------------------------------------------------------
ASSETS
Securities held
to maturity...............$ 36 $ 67 $ 86 $ 155 $ 641 $ 180 $ 1,165
Securities available
for sale.................. 2 5 5 21 43 27 103
Loans........................ 1,023 82 73 143 838 489 2,648
Federal funds sold
and short-term deposits.... 1 - - - - - 1
--------------------------------------------------------------------------------
Total earning assets......$ 1,062 $ 154 $ 164 $ 319 $ 1,522 $ 696 $ 3,917
SOURCES OF FUNDS
Demand deposits..............$ 27 $ 1 $ 38 $ 41 $ 954 $ - $ 1,061
Savings deposits............. 17 33 6 10 392 - 458
Money market
account deposits........... 2 9 31 28 384 - 454
NOW account deposits......... 11 2 27 17 401 - 458
Eurodollar deposits.......... 14 - - - - - 14
Certificates of deposit...... 262 247 252 173 131 - 1,065
Funds purchased and
repurchase agreements....... 290 - - - - - 290
--------------------------------------------------------------------------------
Total funding liabilities..$ 623 $ 292 $ 354 $ 269 $ 2,262 $ - $ 3,800
INTEREST RATE
SENSITIVITY GAP..............$ 439 $ (138) $ (190) $ 50 $ (740) $ 696 $ 117
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP..........................$ 439 $ 301 $ 111 $ 161 $ (579) $ 117
CUMULATIVE INTEREST
RATE SENSITIVITY GAP
AS A PERCENT OF
TOTAL EARNING
ASSETS....................... 11.2% 7.7% 2.8% 4.1% 14.8% 3.0%
Page 26 of 64 Pages
LIQUIDITY AND OTHER MATTERS
The Company and the Bank manage their liquidity positions to ensure
their ability to satisfy customer demand for credit, to fund deposit
withdrawals, to meet operating and other corporate obligations, and to take
advantage of investment opportunities, all in a timely and cost-effective
manner. Traditionally these liquidity needs have been met by maintaining a
strong base of core deposits and by carefully managing the maturity structure of
the investment portfolios. The funds provided by current operations and
forecasts of loan repayments are also considered in the liquidity management
process.
The Bank enter into short-term borrowing arrangements by purchasing
federal funds and selling securities under repurchase agreements, both as a
source of funding for certain short-term lending facilities and as part of their
services to correspondent banks and certain other customers. Neither the Company
nor the Bank have accessed long-term debt markets as part of liquidity
management.
The consolidated statements of cash flows provides a summarized view of
the Company's uses and sources of liquidity over the three-year period ended
December 31, 1997. The funding of loan growth was by far the major use of
liquidity in 1997, requiring a total of $368 million. Unreinvested proceeds from
maturities and sales of investment securities during 1997 and a reduction in
short-term cash management investments provided $259 million of the liquidity
needed to fund this loan growth. The net cash flow used in investing activities
for 1997 totalled $130 million, including capital expenditures for retail
network expansion, technological enhancements and other purposes totalling $35
million.
The Company financed this investment in part through a net increase in
total deposits and short-term borrowings of $54 million, which is discussed in
more detail below. The Company generated $68 million in liquid funds during 1997
from operations and paid total dividends, including those of pooled entities, of
approximately $22 million during the year. The Company also reduced its average
required reserve balance with the Federal Reserve Bank by approximately $27
million through the introduction of computer-based techniques to minimize
reservable liabilities.
The accompanying tables present information concerning deposits and
short-term borrowings for the years 1997, 1996 and 1995. Average core deposits,
defined as all deposits other than time deposits of $100,000, increased
approximately $58 million between 1996 and 1997 to approximately $2.77 billion.
Growth in average non-interest-bearing demand deposits of $50 million and in
money market deposits of $75 million were partially offset by a $67 million
decrease in interest-bearing checking, savings deposit and core time deposit
products. Non-core time deposits grew on average by $51 million between these
periods.
Approximately 81% of core and 94% of non-core time deposits at December
31, 1997 mature within one year. Although these time deposits, in particular the
non-core time deposits, are more volatile than the transaction and savings
deposit products, management does not anticipate any significant near-term
negative impact on liquidity from maturities.
At December 31, 1997, $290 million in short-term borrowings was related
to cash management services provided by the Banks to their downstream
correspondents and other customers.
As of December 31, 1997, approximately $344 million or 30% of the
portfolio of investment securities held to maturity was scheduled to mature
within one year. An additional $103 million of investment securities was
classified as available for sale at the end of 1997, although management's
assignment of this classification is not based primarily on liquidity
considerations.
The Bank had approximately $1.2 billion in unfunded loan commitments
outstanding at December 31, 1997, an increase of $147 million from the level at
December 31, 1996. Contingent obligations under letters of credit and financial
guarantees decreased by approximately $34 million between these dates to a total
of $104 million at December 31, 1997. Available credit card and related lines
were $103 million at December 31, 1997, and increase of $25 million from
December 31, 1996. Because commitments and unused credit lines may, and many
times do, expire without being drawn upon, unfunded balances do not represent
actual future liquidity requirements. Draws by customers against these
commitments should not place any unusual strain on the Company's liquidity
position.
Page 27 of 64 Pages
In 1998, the Company plans to open or begin construction on fourteen
additional branch locations throughout the market areas of the Bank. Total
capital expenditures for these new facilities are estimated at $25 million.
DEPOSITS
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
1997 1996 1995
------------------------------------------
Average non-interest-bearing demand deposits in domestic bank offices..$ 955,407 $ 905,327 $ 892,593
Average NOW account deposits in domestic offices....................... 434,685 446,493 428,240
Average savings and money market account deposits in domestic bank
offices............................................................. 849,062 789,078 842,519
Average time deposits in domestic bank offices......................... 1,025,020 1,017,188 914,148
Average time deposits in foreign banking offices....................... 13,706 12,006 6,921
Remaining maturity of time deposits of $100,000 or more issued
by domestic offices as of December 31, 1997:
3 months or less....................................................$ 344,569
Over 3 through 12 months............................................ 157,330
Over 12 months...................................................... 29,761
-----------
Total time deposits of $100,000 or more...........................$ 531,660
-----------
Remaining maturity of time deposits of less than $100,000 issued
by domestic offices as of December 31, 1997:
3 months or less....................................................$ 165,539
Over 3 through 12 months............................................ 264,886
Over 12 months...................................................... 103,016
-----------
Total time deposits of less than $100,000.........................$ 533,441
-----------
Total time deposits in domestic offices...........................$ 1,065,101
===========
FEDERAL FUNDS PURCHASED AND BORROWINGS UNDER REPURCHASE AGREEMENTS
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
1997 1996 1995
-------------------------------------------------
Amount outstanding at year end.........................................$ 289,603 $ 484,045 $ 228,591
Weighted average interest rate at year end............................. 5.06% 5.03% 5.15%
Average outstanding during the year....................................$ 408,757 $ 367,528 $ 196,122
Weighted average interest rate for the year............................ 4.99% 4.92% 5.15%
Maximum amount outstanding at any month end............................$ 512,353 $ 484,045 $ 234,558
Page 28 of 64 Pages
Item 8: FINANCIAL STATEMENT AND SUPPLEMENTAL DATA
W H I T N E Y H O L D I N G C O R P O R A T I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D B A L A N C E S H E E T S
(dollars in thousands) December 31,
1997 1996
------------------------
ASSETS
Cash and due from financial institutions....................................................... $ 221,318 $ 245,261
Investment in securities:
Securities available for sale............................................................. 103,253 209,001
Securities held to maturity (fair value of $1,179,631 in 1997 and $1,273,532 in 1996)..... 1,165,035 1,265,197
Federal funds sold and short-term deposits..................................................... 500 55,693
Loans.......................................................................................... 2,647,578 2,277,584
Less reserve for possible loan losses.......................................................... 42,805 42,411
------------------------
Loans, net................................................................................ 2,604,773 2,235,173
Bank premises and equipment, net............................................................... 138,164 118,833
Other real estate owned, net................................................................... 2,661 4,584
Accrued income receivable...................................................................... 32,562 33,616
Other assets................................................................................... 44,721 50,675
------------------------
TOTAL ASSETS......................................................................... $ 4,312,987 $ 4,218,033
========================
LIABILITIES
Deposits:
Non-interest-bearing demand deposits...................................................... $ 1,060,793 $ 1,000,877
Interest-bearing deposits................................................................. 2,449,930 2,261,409
------------------------
Total deposits........................................................................ 3,510,723 3,262,286
Federal funds purchased and securities sold under repurchase agreements........................ 289,603 484,045
Dividends payable.............................................................................. 5,820 4,870
Other liabilities.............................................................................. 28,113 26,296
-----------------------
TOTAL LIABILITIES.................................................................... $3,834,259 $3,777,497
-----------------------
SHAREHOLDER'S EQUITY
Common stock, no par value: 40,000,000 shares authorized,
21,150,519 shares issued and 20,804,175 shares outstanding in 1997,
21,029,821 shares issued and 20,536,041 shares outstanding in 1996,
after deduction of treasury stock......................................................... $ 2,800 $ 2,800
Capital surplus................................................................................ 119,600 109,743
Retained earnings.............................................................................. 365,939 336,631
Net unrealized gain (loss) on securities available for sale or transferred to held to
maturity, net of tax effect of $192 in 1997 and $437 in 1996.............................. (366) (864)
------------------------
Total................................................................................ 487,973 448,310
Treasury stock at cost, 346,344 shares in 1997 and 493,780 shares
in 1996, and unearned restricted stock compensation....................................... 9,245 7,774
------------------------
TOTAL SHAREHOLDERS' EQUITY........................................................... $ 478,728 $ 440,536
------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........................................................... $ 4,312,987 $ 4,218,033
========================
The accompanying notes are an integral part of these financial statements
Page 29 of 64 Pages
W H I T N E Y H O L D I N G C O R P O R A T I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
(in thousands, except per-share amounts) Year Ended December 31,
1997 1996 1995
------------------------------------------
INTEREST INCOME
Interest and fees on loans.............................................. $ 204,885 $ 173,122 $ 147,762
Interest and dividends on investments:
U.S. Treasury and agency securities............................... 57,693 69,098 77,103
Mortgage-backed securities........................................ 19,079 17,864 11,986
Obligations of states and political subdivisions.................. 7,321 7,278 7,203
Federal Reserve and corporate securities.......................... 391 389 1,093
Interest on federal funds sold and short-term deposits.................. 2,040 2,869 4,833
------------------------------------------
TOTAL....................................................... $ 291,409 $ 270,620 $ 249,980
------------------------------------------
INTEREST EXPENSE
Interest on deposits.................................................... $ 86,563 $ 83,963 $ 77,704
Interest on federal funds purchased and securities sold under
repurchase agreements............................................. 20,384 18,089 10,093
------------------------------------------
TOTAL....................................................... $ 106,947 $ 102,052 $ 87,797
------------------------------------------
Net interest income..................................................... $ 184,462 $ 168,568 $ 162,183
Reduction of reserve for possible loan losses........................... 2,812 4,435 8,960
------------------------------------------
Net interest income after reduction of reserve for possible loan losses. $ 187,274 $ 173,003 $ 171,143
NON-INTEREST INCOME
Gain on sale of securities.............................................. $ 10 $ 19 $ 6
Other non-interest income............................................... 51,025 41,798 38,188
------------------------------------------
TOTAL....................................................... $ 51,035 $ 41,817 $ 38,194
------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits.......................................... $ 81,057 $ 75,071 $ 71,097
Occupancy of bank premises, net......................................... 12,285 11,368 9,458
Other non-interest expenses............................................. 66,288 62,748 56,450
------------------------------------------
TOTAL....................................................... $ 159,630 $ 149,187 $ 137,005
------------------------------------------
Income before income taxes.............................................. $ 78,679 $ 65,633 $ 72,332
Income tax expense...................................................... 26,461 21,139 22,819
------------------------------------------
Net Income.............................................................. $ 52,218 $ 44,494 $ 49,513
==========================================
Earnings per share...................................................... $ 2.52 $ 2.18 $ 2.46
Earnings per share, assuming dilution................................... $ 2.50 $ 2.17 $ 2.44
Weighted-average shares outstanding..................................... 20,706,359 20,419,752 20,107,564
Weighted-average shares, assuming dilution.............................. 20,866,169 20,539,159 20,268,477
The accompanying notes are an integral part of these financial statements.
Page 30 of 64 Pages
W H I T N E Y H O L D I N G C O R P O R A T I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N
S H A R E H O L D E R S ' E Q U I T Y
(in thousands, except share and per-share amounts)
Net
Unrealized Unearned
Gain(Loss)on Restricted
Securities Stock
Common Capital Retained Available Treasury Compen-
Stock Surplus Earnings For Sale Stock sation Total
------------------------------------------------------------------------
Balance at December 31, 1994...................... $2,800 $97,461 $274,580 ($8,764) ($5,662) ($2,079) $358,336
Net income for 1995.......................... 49,513 49,513
Cash dividends declared, $0.82 per share..... (12,158) (12,158)
Cash dividends declared by pooled
entities, pre-merger....................... (1,671) (1,671)
Common stock issued:
Employee savings plan, 148,177 shares........ 3,764 3,764
Dividend reinvestment plan, 50,291 shares.... 1,325 1,325
Employee stock grants, net of forfeitures.... 766 360 (1,126) -
Director stock grants........................ 56 56
Stock options exercised...................... 41 45 86
Pooled entries, pre-merger................... 15 15
Amortization of unearned restricted
stock compensation........................ 687 687
Change in net unrealized gain (loss)
on securities ............................ 9,182 9,182
-----------------------------------------------------------------------
Balance at December 31, 1995...................... $2,800 $103,428 $310,264 $418 ($5,257) ($2,518) $409,135
-----------------------------------------------------------------------
Net income for 1996.......................... 44,494 44,494
Cash dividends declared, $0.97 per share..... (16,796) (16,796)
Cash dividends declared by pooled
entities, pre-merger....................... (1,331) (1,331)
Common stock issued:
Employee savings plan, 26,604 shares......... 828 828
Dividend reinvestment plan, 59,285 shares.... 1,857 1,857
Employee stock grants, net of forfeitures.... 1,107 354 (1,461) -
Director stock grants........................ 59 59
Stock options exercised, including tax
benefit from non-qualified options
exercised................................. 2,154 210 2,364
Pooled entries, pre-merger................... 310 310
Amortization of unearned restricted
stock compensation........................ 898 898
Change in net unrealized gain (loss)
on securities ............................ (1,282) (1,282)
-----------------------------------------------------------------------
Balance at December 31, 1996...................... $2,800 $109,743 $336,631 ($864) ($4,693) ($3,081) $440,536
-----------------------------------------------------------------------
Net income for 1997.......................... 52,218 52,218
Cash dividends declared, $1.12 per share..... (22,790) (22,790)
Cash dividends declared by pooled
entities, pre-merger....................... (120) (120)
Common stock issued:
Employee savings plan, 53,685 shares......... 2,394 123 2,517
Dividend reinvestment plan, 62,600 shares.... 2,528 2,528
Employee stock grants, net of forfeitures
and 13,272 shares repurchased to fund
recipient tax liabilities............... 3,560 590 (4,647) (497)
Tax benefit upon lapse of stock restrictions. 361 361
Director stock grants........................ 153 153
Stock options exercised, including tax
benefit from non-qualified options
exercised................................. 861 295 1,156
Amortization of unearned restricted
stock compensation........................ 2,168 2,168
Change in net unrealized gain (loss)
on securities ............................ 498 498
-----------------------------------------------------------------------
Balance at December 31, 1997...................... $2,800 $119,600 $365,939 ($366) ($3,685) ($5,560) $478,728
=======================================================================
The accompanying notes are an integral part of these financial statements.
Page 31 of 64 Pages
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
Cash flows from operating activities:
Net income................................................................... $ 52,218 $ 44,494 $ 49,513
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Depreciation.............................................................. 13,354 11,395 9,355
Reduction in reserve for possible loan losses............................. (2,812) (4,435) (8,960)
Provision for losses on OREO and other problem assets..................... 243 385 87
Amortization of intangible assets and unearned restricted
stock compensation...................................................... 4,516 3,700 3,486
Amortization of premiums and discounts on investment securities, net...... 2,621 7,380 12,291
Net gains on sales of OREO and other property............................. (6,213) (2,775) (1,277)
Net gains on sales of investment securities............................... (10) (19) (6)
Deferred tax expense (benefit)............................................ 317 (262) 3,178
Increase (Decrease) in accrued income taxes............................... 629 (80) 6
(Increase) Decrease in accrued income receivable and other assets......... 1,460 11 4,023
Increase (Decrease) in accrued expenses and other liabilities............. 2,108 10 1,178
-----------------------------------
Net cash provided by operating activities................................. $ 68,431 $ 59,804 $ 72,874
-----------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities held to maturity........... $ 725,035 $ 423,550 $ 380,840
Proceeds from maturities of investment securities available for sale......... 90,639 50,393 42,066
Proceeds from sales of investment securities available for sale.............. - 76,778 3,262
Purchases of investment securities held to maturity.......................... (599,652) (342,145) (199,380)
Purchases of investment securities available for sale........................ (11,974) (61,660) (50,522)
Net (increase) decrease in loans............................................. (367,630) (438,183) (378,629)
Net (increase) decrease in federal funds sold and short-term deposits........ 55,193 (4,401) 16,298
Proceeds from sales of OREO and other property............................... 10,538 6,977 4,364
Capital expenditures......................................................... (35,193) (35,283) (18,301)
Net cash (paid) received in business acquisition............................. - - (3,695)
Other........................................................................ 3,231 (2,264) (3,981)
-----------------------------------
Net cash provided by (used in) investing activities.......................... $ (129,813)$ (326,238)$ (207,678)
-----------------------------------
Cash flows from financing activities:
Net increase (decrease) in non-interest-bearing demand deposits.............. $ 59,916 $ 32,256 $ 75,915
Net increase (decrease) in interest-bearing deposits other than
certificates of deposits................................................... 79,161 1,727 (109,777)
Net increase (decrease) in certificates of deposit........................... 109,360 (25,371) 161,932
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements..................................................... (194,442) 256,156 43,151
Sale of common stock under employee savings plan and dividend
reinvestment plan......................................................... 5,045 2,685 5,089
Exercise of stock options..................................................... 856 1,657 86
Stock issued by pooled entities, pre-merger................................... - 310 15
Stock repurchased for treasury................................................ (497) - -
Dividends paid, including pooled entities.................................... (21,960) (17,037) (13,104)
-----------------------------------
Net cash provided by (used in) financing activities.......................... $ 37,439 $ 252,383 $ 163,307
-----------------------------------
Net increase (decrease) in cash and cash equivalents............................ $ (23,943)$ (14,051)$ 28,503
Cash and cash equivalents at the beginning of the period........................ 245,261 259,312 230,809
-----------------------------------
Cash and cash equivalents at the end of the period.............................. $ 221,318 $ 245,261 $ 259,312
===================================
Interest income received........................................................ $ 292,467 $ 270,706 $ 246,970
===================================
Interest expense paid........................................................... $ 106,391 $ 102,572 $ 83,008
===================================
Net federal income taxes paid................................................... $ 24,649 $ 21,284 $ 19,357
===================================
The accompanying notes are an integral part of these financial statements.
Page 32 of 64 Pages
Notes To Financial Statements
(1) NATURE OF BUSINESS
Whitney Holding Corporation (the "Company") is a Louisiana bank holding
company registered pursuant to the Bank Holding Company Act of 1956. The Company
began operations in 1962 as the parent of Whitney National Bank, which has been
in continuous operation since 1883. Beginning in 1994 and continuing through
1997, the Company operated as a multi-bank holding company, having established
in connection with business acquisitions the Whitney Bank of Alabama in 1995,
the Whitney National Bank of Florida in 1996 and the Whitney National Bank of
Mississippi in 1997. In January 1998, the Company merged all of its banking
operations into Whitney National Bank. Throughout this annual report, references
to the "Bank" will cover all former subsidiary banks. During 1995, the Company
established the Whitney Community Development Corporation ("WCDC"), which is
authorized to make equity and debt investments in corporations or projects
designed primarily to promote community welfare, including the economic
rehabilitation and development of low-income areas by providing housing,
services, or jobs for residents, or promoting small businesses that service
low-income areas.
The Company, through its banking subsidiary, engages in commercial and
retail banking and in trust business, including the taking of deposits, the
making of secured and unsecured loans, the financing of commercial transactions,
the issuance of credit cards, the delivery of corporate, pension and personal
trust services, and certain limited investment services. The Bank renders these
services throughout its market areas in south Louisiana, south Alabama, along
the Mississippi Gulf Coast, in the Pensacola, Florida area, and through a
foreign branch on Grand Cayman in the British West Indies.
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Bank. Within its market areas, the Bank competes directly with major
banking institutions of comparable or larger size and resources as well as with
various other smaller banking organizations and local and national "non-bank"
competitors, including savings and loans, credit unions, mortgage companies,
personal and commercial finance companies, investment brokerage firms, and
registered investment companies.
In recent years there has been a significant consolidation within the
financial services industry, particularly with respect to the banking and
savings and loan segments of this industry. This consolidation has been driven
more recently by general competitive pressures. All of the Bank's major direct
banking competitors have been relatively active in expansion through
acquisition. Since 1994 the Company has acquired seven separate banking
operations involving approximately $975 million of assets and will complete two
additional bank mergers in the second quarter of 1998 involving approximately
$338 million of assets. The trend toward industry consolidation is expected to
continue in the near term.
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships which have been developed over a
period of many years and is not dependent upon any single customer or upon a few
customers. The loss of any single customer or a few customers would not have a
material adverse effect on the Bank or the Company. The Bank has customers in a
number of foreign countries, but the portion of revenue derived from these
foreign customers is not a material portion of its overall revenues.
The Company and the Bank and their related operations are subject to
federal, state and local laws applicable to banks and bank holding companies and
to the regulations of the Board of Governors of the Federal Reserve System, the
Office of the Comptroller of Currency, and the Federal Deposit Insurance
Corporation.
Page 33 of 64 Pages
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Whitney Holding Corporation
and its subsidiaries follow generally accepted accounting principles and
policies within the banking industry. The following is a summary of the more
significant policies.
CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of Whitney Holding Corporation and its wholly-owned subsidiaries, which
at December 31, 1997 included Whitney National Bank, Whitney Bank of Alabama,
Whitney National Bank of Florida, Whitney National Bank of Mississippi and
Whitney Community Development Corporation.
Certain balances in prior years have been reclassified to conform with
this year's presentation.
USE OF ESTIMATES
To prepare financial statements in conformity with generally accepted
accounting principles, management is required to develop estimates that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the amounts
of revenues and expenses to be reported for the periods presented in the
financial statements. Actual results could differ from those estimates.
CASH AND DUE FROM FINANCIAL INSTITUTIONS
The Company considers cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statement of cash flows.
INVESTMENT IN SECURITIES
Debt securities which the Company both positively intends and has the
ability to hold to maturity are carried at amortized cost. These criteria are
not considered satisfied when a security is available to be sold in response to
changes in interest rates, prepayment rates, liquidity needs or other reasons as
part of an overall asset/liability management strategy.
Debt securities and equity securities with readily determinable fair
values that are acquired with the intention of being resold in the near term are
classified as trading securities and are carried at fair value, with unrealized
holding gains and losses recognized in current earnings. The Company does not
currently hold any securities for trading purposes.
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and carried at fair value. Unrealized holding gains and losses for these
securities are recognized, net of related tax effects, as a separate component
of shareholders' equity.
Interest and dividend income earned on securities either held to
maturity or available for sale is included in current earnings, including the
amortization of premiums and the accretion of discounts using the interest
method. The gain or loss realized on the sale of a security held to maturity or
available for sale is computed with reference to its amortized cost and is also
included in current earnings.
LOANS
Loans are generally carried at the principal amounts outstanding, less
unearned income and the reserve for possible loan losses.
Interest on loans is accrued and credited to income based on the
outstanding loan principal amounts. The
Page 34 of 64 Pages
accrual of interest on loans is discontinued when, in management's judgement,
there is an indication that a borrower will be unable to meet contractual
payments as they become due. For commercial and real estate loans, this
generally occurs when a loan falls ninety days past due as to principal or
interest, and the loan is not otherwise both well secured and in the process of
collection. Upon discontinuance, accrued but uncollected interest is reversed
against current income. Interest payments received on nonaccrual loans are used
to reduce the reported loan principal under the cost recovery method when the
collectibility of the remaining principal is not reasonably assured; otherwise,
these payments are recognized as interest income.
A nonaccrual loan may be reinstated to accrual status when full payment
of contractual principal and interest is expected and this expectation is
supported by current performance.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses is maintained at a level which, in
management's judgement, is considered adequate to absorb potential losses
inherent in the loan portfolio. The adequacy of the reserve is evaluated by
management on an ongoing basis. As adjustments to the level of reserves become
necessary, they are reported in current earnings. The factors considered in this
evaluation include the estimated potential losses from specific lending
relationships, including unused loan commitments and credit guarantees; general
economic conditions; economic conditions affecting specific classes of borrowers
or types of loan collateral; historical loss experience; and various trends in
loan portfolio characteristics, such as volume, maturity, customer mix,
delinquencies and nonaccruals.
As actual losses are incurred, they are charged against the reserve.
Recoveries on loans previously charged off are added back to the reserve.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118. Under this standard, a loan is
considered impaired when it is probable that all contractual amounts will not be
collected as they become due. The extent of impairment is measured based on a
comparison of the recorded investment in the loan with either the expected cash
flows discounted using the loan's original effective interest rate or, in the
case of certain collateral-dependent loans, the fair value of the underlying
collateral. The measure of impairment is included in the reserve for possible
loan losses.
The provisions of SFAS No. 114 are not applied by the Company to
measure impairment included for large groups of similar loans with relatively
small balances, such as consumer credit line loans and consumer installment
loans. As allowed under the standard, these loans are collectively evaluated for
impairment.
The guidance in SFAS No. 114 did not represent a significant departure
from existing procedures followed by the Company in evaluating the overall
adequacy of the reserve for possible loan losses. Furthermore, loans evaluated
for impairment in most all cases met the criteria already in use by the Company
to identify loans on which the accrual of interest should be discontinued. As
such, the adoption of this standard has had no significant impact on the
Company's financial position or results of operations.
FORECLOSED ASSETS
Collateral acquired through foreclosure or in settlement of loans is
classified as either other real estate owned ("OREO") or other assets and is
carried at its fair value, net of estimated costs to sell, or the remaining
investment in the loan, whichever is lower. At acquisition, any excess of the
recorded loan value over the estimated fair value of the collateral is charged
against the reserve for possible loan losses. After acquisition, valuation
allowances are established with a charge to current earnings to adjust the
reported value of foreclosed assets to reflect changes in the estimate of a
property's fair value or selling costs. Revenues and expenses associated with
the management of foreclosed assets prior to sale are included in current
earnings.
Page 35 of 64 Pages
BANK PREMISES AND EQUIPMENT AND OTHER LONG-LIVED ASSETS
Bank premises and equipment are carried at cost, net of accumulated
depreciation and amortization.
Provisions for depreciation and amortization included in non-interest
expenses are computed primarily on the straight-line method over the estimated
useful lives of the assets. Estimated useful lives range from fifteen to
forty-five years for buildings and improvements and from three to fifteen years
for furnishings and equipment.
Management is alert to indications that the carrying value of
long-lived assets used in operations, such as bank premises and equipment,
certain identifiable intangibles, and any goodwill related to these assets, may
not be fully recoverable. When such indications are present, the Company will
recognize an impairment loss if the undiscounted cash flows estimated to be
derived from the use of these assets do not exceed their carrying value.
INCOME TAXES
The Company accounts for income taxes using what is known as the asset
and liability method. Under this method the expected tax consequences of the
temporary differences that arise between the tax bases of assets or liabilities
and their reported amounts in the financial statements represent either tax
liabilities to be settled in the future or tax assets that will be realized as a
reduction of future taxes. Currently enacted tax rates and laws are used to
calculate expected tax consequences. The change in net deferred tax assets or
liabilities between periods is recognized as a deferred tax expense or benefit
in the consolidated statement of operations or, for certain temporary
differences, reflected directly in shareholders' equity.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for the reporting and display of comprehensive income as
part of a full set of financial statements. Comprehensive income for a period
encompasses net income and all other changes in a company's equity other than
from transactions with the company's owners. SFAS No. 131 establishes standards
for reporting information about a company's operating segments and requires that
reportable segments be identified based on how management organizes the
company's operations and related financial information for decision-making
purposes and performance assessment. The provisions of SFAS No. 130 and 131 are
effective for 1998. Adoption of these standards will result in some changes in
the financial statement presentation to reflect comprehensive income (primarily
with respect to changes in market value of available for sale investment
securities), but will not have an effect on the Company's financial position or
results of operations.
EARNINGS PER SHARE
During 1997 the FASB issued a statement that revised and simplified the
standards for the calculation of earnings per share ("EPS"). Under these
standards, which became effective for the period ended December 31, 1997, the
Company reports two measures of EPS. The more basic EPS measure is calculated by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the applicable period, without adjustment for
potential common shares outstanding in the form of options, warrants,
convertible securities or contingent stock agreements. The second measure of EPS
incorporates the dilutive effect of potential common shares by increasing the
number of common shares outstanding for the basic calculation by the number of
additional shares that would have been outstanding if the dilutive potential
common shares had been issued, all as determined using the treasury stock method
where appropriate. The new standards have been applied to the calculation of EPS
for all periods presented.
In calculating both measures of EPS, the Company's reported net income
equals income available to common shareholders. The potential common shares that
are factored into the calculation of the weighted-average shares outstanding for
the diluted EPS measurement consist only of unexercised stock options that the
Company has granted to employees and directors.
Page 36 of 64 Pages
(3) INVESTMENT IN SECURITIES
Summary information regarding securities available for sale and
securities held to maturity follows:
(dollars in thousands) SECURITIES AVAILABLE FOR SALE
--------------------------------------------------------------------------
WEIGHTED GROSS GROSS ESTIMATED
AVERAGE AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 MATURITY COST GAIN LOSS VALUE
--------------------------------------------------------------------------
U.S. Treasury securities............ 9 mos. $ 3,992 $ 2 $ 2 $ 3,992
U.S. government agency securities... 123 mos. 17,739 327 38 18,028
Mortgage-backed securities.......... 82 mos. 81,211 502 480 81,233
State and municipal securities...... - - - - -
--------------------------------------------------------------------------
TOTAL...................... 86 mos. $ 102,942 $ 831 $ 520 $ 103,253
==========================================================================
DECEMBER 31, 1996
U.S. Treasury securities............ 13 mos. $ 9,515 $ 25 $ 21 $ 9,519
U.S. government agency securities... 89 mos. 55,422 175 592 55,005
Mortgage-backed securities.......... 88 mos. 143,256 938 789 143,405
State and municipal securities...... 110 mos. 1,044 28 - 1,072
--------------------------------------------------------------------------
TOTAL...................... 84 mos. $ 209,237 $ 1,166 $ 1,402 $ 209,001
==========================================================================
(dollars in thousands) SECURITIES HELD TO MATURITY
--------------------------------------------------------------------------
WEIGHTED GROSS GROSS ESTIMATED
AVERAGE AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 MATURITY COST GAIN LOSS VALUE
--------------------------------------------------------------------------
U.S. Treasury securities............ 14 mos. $ 300,260 $ 3,037 $ 15 $ 303,282
U.S. government agency securities... 43 mos. 427,390 3,541 1,703 429,228
Mortgage-backed securities.......... 132 mos. 299,612 810 632 299,790
State and municipal securities...... 60 mos. 131,818 4,313 12 136,119
Federal Reserve stock and other
corporate securities.............. - 5,955 5,257 - 11,212
--------------------------------------------------------------------------
TOTAL...................... 60 mos. $1,165,035 $ 16,958 $ 2,362 $ 1,179,631
==========================================================================
DECEMBER 31, 1996
U.S. Treasury securities............ 12 mos. $ 565,584 $ 3,670 $ 851 $ 568,403
U.S. government agency securities... 43 mos. 401,023 2,434 2,284 401,173
Mortgage-backed securities.......... 72 mos. 146,295 436 868 145,863
State and municipal securities...... 66 mos. 146,237 3,999 342 149,894
Federal Reserve stock and other
corporate securities.............. - 6,058 2,141 - 8,199
--------------------------------------------------------------------------
TOTAL...................... 35 mos. $1,265,197 $ 12,680 $ 4,345 $ 1,273,532
==========================================================================
At December 31, 1997 and 1996, securities with a carrying value of
approximately $827 million and $909 million, respectively, were sold under
repurchase agreements, pledged to secure public funds and trust deposits or
pledged for other purposes.
Page 37 of 64 Pages
During 1997, approximately $28 million of securities that had been
classified by pooled entities as available for sale prior to their merger with
the Company were transferred to the held to maturity category in accordance with
the investment policies and practices of the combined institution. During 1996,
such transfers totalled approximately $12 million. These transfers were recorded
at fair value. The unrealized gains and losses at the transfer dates, which are
included net of tax as a component of shareholders' equity, were insignificant.
The amortized cost and estimated fair value of securities, other than
equity securities, available for sale and held to maturity at December 31, 1997
are shown as follows by contractual maturity. The actual maturities of certain
securities, in particular mortgage-backed securities and municipal securities,
may differ from contractual maturities because of principal amortization,
prepayments and the exercise of call options.
AVAILABLE FOR SALE
-----------------------------------
(in thousands) ESTIMATED
MATURITY DISTRIBUTION AMORTIZED FAIR
DECEMBER 31, 1997 COST VALUE
-----------------------------------
One year or less........................$ 18,484 $ 18,413
One to five years....................... 51,225 51,470
Five to ten years....................... 3,813 3,846
Over ten years.......................... 29,420 29,524
-----------------------------------
$ 102,942 $ 103,253
===================================
HELD TO MATURITY
-----------------------------------
(in thousands) ESTIMATED
MATURITY DISTRIBUTION AMORTIZED FAIR
DECEMBER 31, 1997 COST VALUE
-----------------------------------
One year or less........................$ 230,673 $ 232,128
One to five years....................... 539,432 544,402
Five to ten years....................... 267,308 270,051
Over ten years.......................... 121,667 121,838
-----------------------------------
$ 1,159,080 $ 1,168,419
===================================
(4) LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
The composition of the Company's loan portfolio at December 31, 1997
and 1996 was as follows (in thousands):
1997 1996
-------------------------------
Commercial, financial and
agricultural loans..............................$ 1,191,649 $ 1,026,862
Real estate loans - commercial and other......... 786,975 669,683
Real estate loans - retail mortgage.............. 435,628 351,868
Loans to individuals............................. 227,360 216,893
Lease financing receivables...................... 5,966 12,278
-------------------------------
$ 2,647,578 $ 2,277,584
===============================
The Company's lending activity, both commercial and retail, is
conducted primarily among customers in Louisiana, Mississippi, southern Alabama
and the western Florida panhandle. In its market area, the Company serves a
broad base of commercial customers in diverse industries.
Page 38 of 64 Pages
The total of commercial and other real estate loans shown in the
accompanying table includes those for which the primary source of repayment is
the operation or sale of the underlying project, as well as those secured by
real estate employed in other operations of the customer. Unfunded commitments
for loans secured by commercial or other real estate were approximately $214
million at December 31, 1997. The Company's portfolio of commercial and other
real estate loans is diversified as to both the types of collateral property and
the industries in which the properties are employed.
Within the portfolio of commercial, financial and agricultural loans,
the Company maintains a moderate concentration of outstanding credits and loan
commitments to customers involved in the oil and gas industry. At December 31,
1997, outstanding loans to this industry totalled approximately $173 million,
and unused loan commitments and letters of credit and guarantees were
approximately $137 million and $37 million, respectively.
Non-performing loans at December 31, 1997 and 1996 are summarized as
follows (in thousands):
1997 1996
--------------------------------
Loans accounted for on a nonaccrual basis.......$ 9,005 $ 9,079
Restructured loans.............................. 1,560 2,375
--------------------------------
Total non-performing loans......................$ 10,565 $ 11,454
================================
Information on loans evaluated for possible impairment losses follows
(in thousands):
1997 1996
------------------------------
Impaired loans at year end requiring a loss allowance..................$ 4,737 $ 4,088
Impaired loans at year end not requiring a loss allowance.............. 5,431 7,936
------------------------------
Total recorded investment in impaired loans at year end................$ 10,168 $ 12,024
==============================
Total impairment loss allowance required at year end...................$ 2,152 $ 1,934
==============================
Average recorded investment in impaired loans during year..............$ 10,576 $ 12,716
==============================
With respect to certain nonaccrual loans, interest income is recognized
as cash interest payments are received. Interest payments on current or previous
nonaccrual loans that had been accounted for under the cost recovery method may
also subsequently be recognized as interest income when loan collections exceed
previous expectations or when workout efforts result in fully rehabilitated
credits. The following compares contractual interest income on nonaccrual loans
and restructured loans with both the interest income reported on a cash basis
with respect to such loans and the prior cost recovery interest currently
recognized on nonaccrual loans and certain accruing loans (in thousands):
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------------------------------------------
Contractual interest.....$ 1,111 $ 1,242 $ 1,792
Interest recognized...... 1,645 3,729 6,505
---------------------------------------------
Increase in reported
interest income.......$ 534 $ 2,487 $ 4,713
=============================================
Page 39 of 64 Pages
Changes in the reserve for possible loan losses for the three years in
the period ended December 31, 1997, were as follows (in thousands):
1997 1996 1995
--------------------------------------------
Balance at beginning of year........$ 42,411 $ 43,341 $ 41,024
Reserves provided through
acquisition...................... - - 1,772
Reduction in reserve................ (2,812) (4,435) (8,960)
Recoveries.......................... 11,408 10,775 14,620
Loans charged off................... (8,202) (7,270) (5,115)
--------------------------------------------
Balance at end of year..............$ 42,805 $ 42,411 $ 43,341
============================================
The reductions in the reserve for possible loan losses in 1997, 1996
and 1995 primarily reflect improved asset quality coupled with successful
recovery efforts.
The Bank has made loans in the normal course of business to certain
directors and executive officers of the Company and to their associates
("related parties"). The aggregate amount of these loans was $74 million and $97
million at December 31, 1997 and 1996, respectively. During 1997, $231 million
of new loan advances were made, and repayments totalled $254 million.
Outstanding commitments and letters of credit to related parties totaled $86
million and $64 million at December 31, 1997 and 1996, respectively. Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons, and do not involve more than the normal risk of
collectibility at the time of the transaction.
(5) INCOME TAXES
Income tax expense (benefit) consisted of the following components for
the three years in the period ended December 31, 1997 (in thousands):
Included in net income: 1997 1996 1995
--------------------------------------------
Current tax expense...............$ 26,144 $ 21,401 $ 19,641
Deferred tax expense (benefit).... 317 (262) 3,178
--------------------------------------------
$ 26,461 $ 21,139 $ 22,819
============================================
Included in shareholders' equity:
Deferred tax expense (benefit)
related to the change in the
net unrealized gain (loss) on
securities.....................$ 245 $ (704) $ 4,932
Current tax benefit related to
nonqualified stock options and
restricted stock............... (661) (708) -
--------------------------------------------
$ (416) $ (1,412) $ 4,932
============================================
Page 40 of 64 Pages
The components of the net deferred income tax asset, which is included
in other assets on the consolidated balance sheets, were as follows at December
31, 1997 and 1996 (in thousands):
1997 1996
---------------------------
Deferred tax assets:
Reserves for losses on loans, OREO, and
other problem assets......................$ 13,979 $ 14,160
Employee benefit plan liabilities........... 4,157 3,525
Net operating loss carryforward............. 1,364 2,127
Unrecognized interest income................ 1,214 742
Net unrealized loss on securities
available for sale or transferred
to held to maturity..................... 192 437
Other....................................... 1,255 1,347
---------------------------
Total deferred tax assets..........$ 22,161 $ 22,338
---------------------------
Deferred tax liabilities:
Accumulated depreciation and
amortization..............................$ (4,478) $ (4,810)
Other....................................... (1,522) (805)
Total deferred tax liabilities.....$ (6,000) $ (5,615)
---------------------------
Net deferred tax asset...............................$ 16,161 $ 16,723
===========================
As of December 31, 1997, the Company had approximately $3.9 million in
net operating loss carryforwards which had been generated by a pooled entity.
Substantially all of these carryforwards expire in 2004 and 2007.
The Company is required to establish a valuation allowance against the
deferred tax asset if, based on all available evidence, it is more likely than
not that some or all of the asset will not be realized. Management has weighed
the evidence, including current earnings performance, taxable income generated
during available carryback periods, and the nature of significant deductible
temporary differences, and believes that no valuation reserve is required as of
December 31, 1997. Rules issued by regulatory agencies impose additional
limitations on the amount of the deferred tax asset that may be recognized when
calculating regulatory capital ratios. The Company's ratio calculations were not
affected by these rules at December 31, 1997.
The effective tax rate is less than the statutory federal income tax
rate in each of the three years in the period ended December 31, 1997 because of
the following:
PERCENT OF INCOME
BEFORE INCOME TAX
1997 1996 1995
----------------------------
Tax at statutory rate...............................35.0% 35.0% 35.0%
Adjustments in rate resulting from:
Tax exempt income................................(3.8) (4.5) (3.8)
Non-deductible merger-related expenses........... 0.4 1.1 -
Tentative settlement of contingent liability..... 1.3 - -
State income tax................................. 0.3 0.1 -
Miscellaneous items.............................. 0.4 0.5 0.4
----------------------------
Effective tax rate..................................33.6% 32.2% 31.6%
============================
Page 41 of 64 Pages
(6) EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company has a noncontributory qualified defined benefit pension
plan covering substantially all of its employees. The benefits are based on an
employee's total years of service and his or her highest five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate from time to time.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets (in thousands):
DECEMBER 31,
1997 1996
-----------------------
Actuarial present value of benefit obligation: Accumulated benefit obligation :
Vested..................................................................$ (49,284) $ (45,681)
Non-vested.............................................................. (3,963) (3,675)
-----------------------
Total accumulated benefit obligation....................................$ (53,247) $ (49,356)
Benefit obligation related to assumed future pay
increases............................................................... (12,286) (10,464)
-----------------------
Projected benefit obligation (65,533) (59,820)
Plan assets at fair value, primarily U.S. Treasury
and agency securities and listed stocks......................................$ 91,206 $ 73,548
-----------------------
Plan assets in excess of projected benefit
obligations..................................................................... 25,673 13,728
Unrecognized net actuarial gains................................................. (21,106) (8,711)
Unrecognized net implementation asset............................................ (2,309) (2,714)
Unrecognized prior service cost resulting
from plan amendments............................................................ (1,453) (1,576)
-----------------------
Prepaid pension cost.............................................................$ 805 $ 727
=======================
The net pension expense (benefit) recognized for 1997, 1996 and 1995 is
comprised of the following components (in thousands):
1997 1996 1995
----------------------------------------------
Service costs for benefits
during the period................$ 2,019 $ 1,669 $ 1,635
Interest cost on projected
benefit obligation............... 4,237 3,797 3,564
Actual (return) loss on
plan assets..................... (21,065) (9,116) (14,480)
Net amortization and
deferral........................ 14,731 3,175 9,483
----------------------------------------------
Net pension expense
(benefit)........................$ (78) $ (475) $ 202
==============================================
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.00% for 1997 and 7.25%
for 1996 and 1995. For all periods presented, the Company assumed an 8.0%
expected long-term rate of return on plan assets and an annual rate of increase
in future compensation levels of 4.0%.
Page 42 of 64 Pages
In 1995, the Company adopted a nonqualified defined benefit plan
effective as of January 1, 1995. This unfunded plan provides to designated
executive officers retirement benefits calculated using the qualified plan's
formula, but without the restrictions imposed on qualified plans by certain
specified provisions of the Internal Revenue Code. Benefits that become payable
under the nonqualified plan would be reduced by amounts paid from the qualified
plan. The Company previously maintained a nonqualified excess benefit retirement
plan which was terminated effective January 1, 1993 with accrued benefits
preserved for participants. Designated executives participating in the new
nonqualified plan were required to relinquish their benefits under the
terminated plan. At December 31, 1997, the actuarial present value of projected
benefit obligations under the nonqualified plans was approximately $2.5 million
and the recorded accrued pension liability was $1.9 million. The net pension
expense was not material in 1997, 1996 or 1995.
The Company sponsors an employee savings plan under Section 401(k) of
the Internal Revenue Code. Under this plan, which covers substantially all
full-time employees, the Company matches the savings of each participant up to
3% of his or her compensation. Annual participant savings are limited by tax
law. Participants are fully vested in their savings and in the matching Company
contributions at all times. The expense of the Company's matching contributions,
including those made by pooled entities with comparable plans, was approximately
$1.4 million in 1997, $1.3 million in 1996 and $1.1 million in 1995.
Health and Welfare Plans
The Company also maintains certain health care and life insurance
benefit plans for retirees and their eligible dependents. Participant
contributions are required under the health plan, and the Company has
established annual and lifetime maximum health care benefit limits. The Company
recognizes the expected cost of providing these postretirement benefits
during the period employees are actively working. The Company continues to fund
its obligations under the postretirement benefit plans as the benefit payments
are made.
At December 31, 1997, the net postretirement benefit liability reported
with other liabilities in the consolidated balance sheets was approximately $6.7
million. The net periodic postretirement benefit expense recognized for 1997,
1996 and 1995 was $0.5 million, $0.4 million and $0.2 million, respectively. The
net periodic benefit expense includes components for the portion of the expected
benefit obligation attributed to current service, for interest on the
accumulated benefit obligation, and for amortization of unrecognized actuarial
gains or losses. No component was individually significant for any period
reported.
For the actuarial calculation of its postretirement benefit obligations
at December 31, 1997, 1996 and 1995, the Company assumed annual health care cost
increases beginning at 9.0%, 9.50% and 10.0%, respectively, with each decreasing
to a 5.50% rate over a six to ten year period. Discount rates of 7.00% in 1997
and 7.25% in 1996 and 1995 were used in determining the present value of
projected benefits in each period. A 1.0% rise in the assumed health care cost
trend rates would not materially impact the accumulated benefit obligation or
the periodic net benefit expense.
(7) STOCK-BASED INCENTIVE COMPENSATION PLANS AND OTHER STOCK-BASED
COMPENSATION
The Company maintains two stock-based compensation plans. The long-term
incentive plan for key employees is administered by the Compensation Committee
of the Board of Directors, which designates the participants and authorizes the
granting of any awards. Under this plan, which was adopted in 1997 as a
replacement for the previous long-term incentive program, participants may be
awarded stock options, restricted stock, performance shares, phantom shares and
stock appreciation rights. To date, only stock options and restricted stock
grants have been granted under the plan or the predecessor incentive program.
The current directors' compensation plan, which was adopted in 1994 and amended
in 1996, provides for, among other matters, the annual award of common stock and
of options to purchase the Company's common stock to each director who is not an
employee of the Company or its subsidiaries.
Page 43 of 64 Pages
The following schedule summarizes the common stock awards granted under
these plans during 1997, 1996 and 1995:
Market Value
Shares of Award on
Year Plan Awarded Grant Date
----------------------------------------------------------------------------------
1997 Employee 54,040 $ 2,141,000
Employee- performance 62,375 $ 2,505,000
Director 5,400 $ 192,000
1996 Employee- performance 53,500 $ 1,605,000
Director 5,100 $ 156,000
1995 Employee 40,000 $ 1,155,000
Director 2,100 $ 56,000
Shares awarded to employees in 1997 and 1996 are subject to possible
forfeiture if a recipient's employment is terminated within three years of the
grant date and the transfer or other disposition of the shares is prohibited
during this period. In addition, a portion of the 1997 grant and all of the 1996
grant are subject to adjustment based on the performance of the Company, as
measured by its return on assets and return on equity, in relation to that of a
designated peer group over the restriction period, with the ultimate awards
ranging from 0% to 200% of the initial grants. The shares granted to employees
in 1995 are subject to possible forfeiture and transfer restrictions for a
five-year period but not to performance-based adjustments. The directors' shares
are awarded without any significant restriction and are not subject to future
adjustment.
The Company recognizes the market value of the shares awarded on the
grant date as compensation expense ratably over the restriction periods, if any.
Adjustments are made for forfeitures as they occur. Subsequent changes in the
estimate of the unrestricted shares to which employees will ultimately become
entitled under performance-based grants will be reflected in compensation
expense prospectively over the remaining restriction periods. The total
compensation expense recognized during 1997, 1996 and 1995 related to common
stock awards was $2.4 million, $1.0 million and $0.7 million, respectively.
The following table summarizes stock option activity under the
long-term incentive plan for employees and its predecessor incentive program and
under the directors' compensation plan for the three-year period ended December
31, 1997. The exercise price for all options is set at the market price on the
grant date. All options are fully exercisable six months after the date of grant
and expire after ten years.
Page 44 of 64 Pages
Employees Directors
----------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
----------------------------------------
Balance, December 31, 1994.................. 182,848 $ 21.60 12,000 $ 26.25
Options granted.................... 82,750 28.88 14,000 26.75
Options exercised.................. (3,750) 15.70 (1,000) 26.25
Options forfeited.................. (1,000) 28.00 - -
----------------------------------------
Balance, December 31, 1995.................. 260,848 $ 23.97 25,000 $ 26.53
Options granted.................... 103,500 30.00 17,000 30.50
Options exercised.................. (21,524) 18.98 (1,000) 26.75
Options forfeited.................. (3,000) 29.00 - -
----------------------------------------
Balance, December 31, 1996.................. 339,824 $ 26.08 41,000 $ 28.17
Options granted.................... 150,500 42.44 18,000 42.44
Options exercised.................. (30,021) 22.69 (1,000) 30.50
Options forfeited.................. - - - -
----------------------------------------
Balance, December 31, 1997.................. 460,303 $ 31.65 58,000 $ 32.56
========================================
The following table summarizes certain information about these stock
options outstanding under the plans at December 31, 1997:
Range of Number Weighted-average Weighted-average
Exercise Shares under Remaining Years Exercise
Prices Option to Expiration Price
- ------------------------------------------------------------------------
$13.22 - $19.42 74,772 5.25 $ 17.73
$26.25 - $28.88 157,031 7.24 $ 28.22
$30.00 - $30.50 118,000 8.67 $ 30.07
$42.44 - $42.44 168,500 9.63 $ 42.44
------------------------------------------------------
$13.22 - $42.44 518,303 8.06 $ 31.75
======================================================
In 1990, an executive officer was granted options to purchase 33,750
shares of common stock of the Company at a price of $18.11. If this officer
terminates his employment with the Company, the options will be exercisable for
six months after his date of termination. The options will also be exercisable
up to one year past the date of his death, but in no event beyond February 28,
2000. At December 31, 1997, none of these options had been exercised.
As discussed in Note 17, First Citizens BancStock, Inc. ("FCB") was
merged with the Company in March 1996. FCB maintained stock option plans for
certain employees and its directors. Prior to the merger date, none of the
options granted under these plans had been exercised. Upon the merger, holders
of FCB stock options received options to buy 88,252 shares of Company stock at a
price of $10.13 per share, 96,276 shares at a price of $12.78 per share, and
8,023 shares at a price of $14.57 per share. Of these options, 48,587
exercisable at $10.13 remained unexercised at December 31, 1996 and 34,502 at
December 31, 1997. These options expire in approximately six years.
SFAS No. 123, "Accounting for Stock-Based Compensation," became
effective for the Company's 1996 fiscal year. Among other provisions, this
statement established a fair value based method of accounting for stock-based
compensation, including the award of stock options. As provided for in SFAS No.
123, the Company elected not to
Page 45 of 64 Pages
adopt the fair value based method for measuring stock-based compensation cost to
be included in its results of operations, but is continuing to follow prior
generally accepted accounting principles.
SFAS No. 123 requires the following disclosure of pro forma net income
and earnings per share determined as if the fair value method had been applied
in measuring compensation cost related to stock option grants in 1995 and
thereafter (in thousands, except per share amounts):
1997 1996 1995
--------------------------------------------
Net income..........................$ 52,218 $ 44,494 $ 49,513
Pro forma stock-based
compensation expense,
net of tax..................... 1,474 770 577
--------------------------------------------
Pro forma net income................$ 50.744 $ 43,724 $ 48,936
============================================
Pro forma earnings per share........$ 2.45 $ 2.14 $ 2.43
Pro forma earnings per share,
assuming dilution..............$ 2.43 $ 2.13 $ 2.41
Weighted-average fair value
of options granted
during the year...............$ 10.79 $ 7.67 $ 7.14
The fair value of the stock options granted in 1997, 1996 and 1995 was
estimated as of the grant dates using the Black-Scholes option-pricing model.
The Company made the following significant assumptions in applying the option
pricing model: (a) an expected annualized volatility for the Company's common
stock of 18.78 % in 1997 and 17.70% in 1996 and 1995; (b) an average option life
of seven years before exercise; (c) an expected annual dividend yield of 2.80%
in 1997 and 2.90% in 1996 and 1995; and (d) a weighted-average risk-free
interest rate of 6.50% in 1997, 7.01% in 1996 and 6.77% in 1995. The Company
options issued in connection with the merger with FCB, as discussed above, were
not included in the fair value calculation because the FCB options exchanged in
the merger transaction had been issued prior to 1995.
(8) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 are
summarized as follows, net of accumulated depreciation and amortization (in
thousands):
1997 1996
-----------------------------------
Land........................................$ 32,048 $ 30,144
Buildings and improvements.................. 70,741 62,485
Furnishings and equipment................... 35,375 26,204
-----------------------------------
$ 138,164 $ 118,833
===================================
Accumulated depreciation was $94.4 million in 1997 and $91.0 million in 1996.
Provisions for depreciation and amortization included in non-interest expense
for the three years in the period ended December 31, 1997 were as follows (in
thousands):
1997 1996 1995
--------------------------------------
Buildings and improvements...........$ 4,272 $ 3,752 $ 3,155
Furnishings and equipment............ 9,082 7,643 6,200
--------------------------------------
$ 13,354 $ 11,395 $ 9,355
======================================
Page 46 of 64 Pages
(9) OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") comprises real property collateral
acquired through foreclosure or in settlement of loans and surplus banking
property. With the exception of the pre-1933 property interests discussed below,
these properties are reported at their fair values, less expected disposition
costs, or the recorded investment in the related loan, whichever is lower.
Activity in the OREO valuation reserve for the three years in the
period ended December 31, 1997 was as follows (in thousands):
1997 1996 1995
-------------------------------
Balance at beginning of year.....................$ 902 $ 645 $ 958
Provisions for valuation adjustments........... 217 323 88
Charge-offs.................................... (668) (66) (401)
-------------------------------
Balance at end of year...........................$ 451 $ 902 $ 645
===============================
The Whitney National Bank owns a variety of property interests which
were acquired though routine banking transactions generally prior to 1933 and
for which there existed no ready market. These were subsequently written down to
a nominal holding value in accordance with general banking practice at that
time. These property interests include a few commercial and residential site
locations principally in the New Orleans area, ownership interests in scattered
undeveloped acreage and various mineral interests.
The following summarizes the revenues and direct expenses related to
these property interests that are included in the statements of operations (in
thousands):
1997 1996 1995
------------------------------------
Revenues....................................$ 3,026 $ 955 $ 200
====================================
Direct expenses.............................$ 38 $ 58 $ 34
====================================
(10) NON-INTEREST INCOME
The components of non-interest income were as follows for the three
years in the period ended December 31, 1997 (in thousands):
1997 1996 1995
------------------------------
Service charges on deposit
accounts....................................$22,244 $20,585 $20,400
Credit card income............................ 7,412 5,888 5,233
Trust service fees............................ 4,910 4,168 3,787
International services income................. 1,821 1,826 1,941
Investment services income.................... 1,035 1,080 927
ATM fees...................................... 2,939 2,277 1,506
Other fees and charges........................ 2,266 2,239 2,388
Net gains on sales and other
dispositions of foreclosed assets............ 6,213 2,775 1,277
Other operating income........................ 2,185 960 729
------------------------------
Total other non-interest income...............$51,025 $41,798 $38,188
Gain on sale of securities.................... 10 19 6
------------------------------
Total non-interest income.....................$51,035 $41,817 $38,194
==============================
Page 47 of 64 Pages
(11) NON-INTEREST EXPENSE
The components of non-interest expense were as follows for the three
years in the period ended December 31, 1997 (in thousands):
1997 1996 1995
------------------------------
Salaries and benefits.........................$ 80,576 $ 74,261 $ 71,097
Occupancy of bank premises, net............... 12,285 11,368 9,458
Furnishings and equipment,
including data processing.................... 15,256 13,811 11,726
Security and other outside services........... 5,589 5,164 4,195
Credit card processing services............... 5,476 4,337 3,797
Communications and postage.................... 5,448 4,817 3,991
Taxes and insurance, other than real estate... 5,097 5,000 5,134
Stationery and supplies....................... 3,809 3,684 3,129
Legal and other professional services......... 3,598 5,064 4,291
Advertising................................... 3,199 2,625 2,565
Amortization of intangible assets............. 2,348 2,802 2,888
Deposit insurance and regulatory fees......... 994 799 4,259
OREO maintenance and operations, net.......... 228 798 334
Provision for losses on OREO
and other problem assets..................... 1,474 385 87
Other operating expense....................... 10,983 10,046 10,054
------------------------------
Non-interest expense before
merger-related expenses......................$156,360 $144,961 $137,005
Merger-related expenses....................... 3,270 4,226 -
------------------------------
Total non-interest expense....................$159,630 $149,187 $137,005
==============================
(12) OTHER ASSETS AND OTHER LIABILITIES
The significant components of other assets and other liabilities at
December 31, 1997 and 1996 were as follows (in thousands):
OTHER ASSETS
------------------------------------
1997 1996
------------------------------------
Net deferred tax asset......................$ 16,161 $ 16,723
Costs in excess of net
tangible assets acquired.................. 18,988 21,336
Other....................................... 9,572 12,833
------------------------------------
Total other assets..........................$ 44,721 $ 50,892
====================================
Costs in excess of the net tangible assets acquired in prior years'
business combinations are being amortized over remaining lives ranging from two
to thirteen years as of December 31, 1997. Accumulated amortization totalled
approximately $13.3 million at December 31, 1997.
OTHER LIABILITIES
------------------------------------
1997 1996
------------------------------------
Accrued interest payable....................$ 10,654 $ 10,078
Obligation for postretirement
benefits other than pensions.............. 6,660 6,154
Accrued taxes and expenses.................. 6,399 5,588
Other....................................... 4,400 4,476
------------------------------------
Total other liabilities.....................$ 28,113 $ 26,296
====================================
Page 48 of 64 Pages
(13) SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following at December 31, 1997
and 1996 (in thousands):
1997 1996
---------------------------------
Federal funds purchased.................$ 55,065 $ 82,545
Securities sold under
repurchase agreements.................. 234,538 401,500
---------------------------------
Total short-term borrowings.............$ 289,603 $ 484,045
=================================
The carrying value and market value of securities sold under repurchase
agreements at December 31, 1997 are shown below by the term of the underlying
borrowing agreement (in thousands):
UP TO 30 TO
OVERNIGHT 30 DAYS 90 DAYS
------------------------------------
Book value:
U.S. Treasury securities............. $ 16,122 $ 28,576 $ -
U.S. government agency securities.... 189,256 - -
------------------------------------
Total book value.................... $205,378 $ 28,576 $ -
====================================
Fair value:
U.S. Treasury securities............ $ 16,173 $ 28,799 $ -
U.S. government agency securities... 190,542 - -
-----------------------------------
Total fair value......................$206,715 $ 28,799 $ -
===================================
Outstanding borrowings................$208,858 $ 25,680 $ -
===================================
(14) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments." In cases where quoted market prices are not
available, fair values have been estimated using present value or other
valuation techniques. The results of these techniques are highly sensitive to
the assumptions used, such as those concerning appropriate discount rates and
estimates of future cash flows, which require considerable judgement.
Accordingly, estimates presented herein are not necessarily indicative of the
amounts the Company could realize in a current settlement of the underlying
financial instruments. SFAS No. 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements. These disclosures
should not be interpreted as representing an aggregate measure of the underlying
value of the Company.
Page 49 of 64 Pages
The Company does not maintain any investment or participation in
financial instruments or agreements whose value is linked to, or derived from,
changes in the value of some underlying asset or index. Such instruments or
agreements include futures, forward contracts, option contracts, interest-rate
swap agreements and other financial arrangements with similar characteristics,
and are commonly referred to as derivatives.
The following significant methods and assumptions were used by the
Company in estimating the fair value of financial instruments.
DECEMBER 31, 1997 DECEMBER 31, 1996
(in thousands)
-------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------------------------------------------------
ASSETS:
Cash and due from financial
institutions.....................$ 221,318 $ 221,318 $ 245,261 $ 245,261
Federal funds sold and
short-term deposits.............. 500 500 55,693 55,693
Investment in securities.......... 1,268,288 1,282,884 1,474,198 1,482,533
Loans, net........................ 2,604,773 2,600,051 2,235,173 2,230,376
Interest receivable and
other assets..................... 34,585 34,585 35,204 35,204
LIABILITIES:
Deposits..........................$3,510,723 $3,507,400 $3,262,286 $3,262,088
Federal funds and
other short-term borrowings...... 289,603 289,603 484,045 484,045
Interest payable and
other liabilities................ 24,145 24,145 21,343 21,343
Cash and short-term investments - The carrying value of highly liquid
instruments, such as cash on hand, interest- and non-interest-bearing deposits
in financial institutions, and federal funds sold provides a reasonable estimate
of their fair value.
Investment securities - Substantially all of the Company's investment securities
are traded in active markets. Fair value estimates for these securities are
based on quoted market prices obtained from independent pricing services. The
carrying amount of accrued interest on securities approximates its fair value.
Loans, net - For loans with rates that are repriced in coordination with
movements in market rates and with no significant change in credit risk, fair
value estimates are based on carrying values. The fair values for other loans
are estimated through discounted cash flow analysis, using current rates at
which loans with similar terms would be made to borrowers of similar credit
quality. Appropriate adjustments are made to reflect probable credit losses. The
carrying amount of accrued interest on loans approximates its fair value.
Deposits - SFAS No. 107 specifies that the fair value of deposit liabilities
with no defined maturity is to be disclosed as the amount payable on demand at
the reporting date, i.e., at their carrying or book value. These deposits, which
include interest and non-interest checking, passbook savings and money market
accounts, represented approximately 69% of total deposits at December 31, 1997
and 1996. The fair value of fixed maturity deposits is estimated using a
discounted cash flow calculation that applies rates currently offered for time
deposits of similar remaining maturities. The carrying amount of accrued
interest payable on deposits approximates its fair value.
The economic value attributable to the relationship with depositors who
provide low-cost funds to the Company is viewed as a separate intangible asset
and is excluded in SFAS No. 107 from the definition of a financial instrument.
Short-term borrowings - The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Off-balance-sheet instruments - Off-balance-sheet financial instruments include
commitments to extend credit, letters of credit and other financial guarantees.
The fair value of such instruments is estimated using fees currently charged for
Page 50 of 64 Pages
similar arrangements in the marketplace, adjusted for changes in terms and
credit risk as appropriate. The estimated fair value for these instruments was
insignificant at December 31, 1997 and 1996.
(15) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In order to meet the financing needs of its customers, the Company
deals in financial instruments that expose it to off-balance-sheet risk. These
financial instruments include commitments to extend credit, letters of credit,
and other financial guarantees. Such instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statements of financial position.
The Company's exposure to credit loss in the event of nonperformance by
other parties for commitments to extend credit and letters of credit and other
financial guarantees written is represented by the contractual amount of those
instruments. The Company follows the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
CONTRACTUAL AMOUNT
December 31,
1997 1996
------------------------
(in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit.....................................$1,153,742 $1,007,115
Letters of credit and
financial guarantees written.................................... 104,091 69,849
Credit card and related lines.................................... 102,948 78,189
Commitments to extend credit and credit card and related lines are
agreements to make a loan to a customer as long as there is no violation of any
condition established in the commitment or credit line contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount outstanding does not
necessarily represent total future cash outlay requirements. Of the total
commitments outstanding at December 31, 1997 approximately 45% carried a fixed
rate of interest over their terms.
The amount of collateral, if any, required by the Company upon issuance
of a commitment is based on management's credit evaluation of the borrower.
Required collateral varies, but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
Page 51 of 64 Pages
Letters of credit and financial guarantees written are conditional
agreements issued by the Company to guarantee the performance of a customer to a
third party. These agreements are primarily issued to support commercial trade.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Company holds
marketable securities as collateral to support those letters of credit and
guarantees for which collateral is deemed necessary. Letters of credit and
financial guarantees outstanding at December 31, 1997, range from unsecured to
fully secured.
(16) REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by the regulators to gauge capital adequacy are the
ratios of Tier 1 and total regulatory capital to risk-weighted assets and the
ratio of Tier 1 capital to total assets, also known as the Tier 1 leverage
ratio. For the Company and the Bank, Tier 1 capital is essentially equivalent to
total shareholders' equity less goodwill and other intangible assets acquired in
business combinations, while total regulatory capital represents the sum of Tier
1 capital and the reserve for possible loan losses, subject to certain
limitations. Risk-weighting percentages for assets are assigned by the
regulatory agencies and are applied to both reported balances as well as to
certain off-balance-sheet items.
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate capital
adequacy classification under the uniform framework, regulators must also
consider other subjective and quantitative assessments of risk associated with
the institution, such as interest-rate risk. Institutions not judged to be
adequately capitalized are subject to certain mandatory and possible additional
discretionary actions by regulators that could materially impact the
institution's financial position and results of operations.
Management believes, as of December 31, 1997, that the Company and the
Bank meet all capital adequacy requirements imposed by their respective
regulatory agencies. At December 31, 1997, Whitney National Bank, the Company's
only significant banking subsidiary, had been classified as "well capitalized"
in the most recent classification notice received from its regulators. There are
no conditions or events since the notification, including the merger of the
Company's multi-state banking subsidiaries into Whitney National Bank in January
1998, that management believes would change the classification.
Page 52 of 64 Pages
The accompanying table shows the actual regulatory capital ratios and
amounts for the Company and Whitney National Bank at December 31, 1997 and 1996
as well as both the minimum capital adequacy standard currently imposed by their
regulators and the minimum amounts and ratios that the Bank must maintain to be
eligible for a "well capitalized" classification under the prompt corrective
action framework.
Minimum Minimum
Capital Adequacy for "Well Capitalized"
Actual Standard Classification
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands) -------------------------------------------------------------------------
December 31, 1997:
Tier 1 risk-based capital:
Company........................ $ 460,107 14.84% $ 123,977 4.00% n/a n/a
Whitney National Bank.......... $ 372,204 14.07% $ 105,828 4.00% $ 158,742 6.00%
Total risk-based capital:
Company........................ $ 498,900 16.10% $ 247,954 8.00% n/a n/a
Whitney National Bank.......... $ 405,356 15.32% $ 211,657 8.00% $ 264,571 10.00%
Tier 1 leverage capital:
Company........................ $ 460,107 10.72% $ 171,748 4.00% n/a n/a
Whitney National Bank.......... $ 372,204 9.76% $ 152,554 4.00% $ 190,692 5.00%
December 31, 1996:
Tier 1 risk-based capital:
Company........................ $ 420,064 14.96% $ 112,331 4.00% n/a n/a
Whitney National Bank.......... $ 345,910 14.39% $ 96,177 4.00% $ 144,265 6.00%
Total risk-based capital:
Company........................ $ 455,258 16.21% $ 224,662 8.00% n/a n/a
Whitney National Bank.......... $ 376,065 15.64% $ 192,354 8.00% $ 240,442 10.00%
Tier 1 leverage capital:
Company........................ $ 420,064 10.01% $ 167,868 4.00% n/a n/a
Whitney National Bank.......... $ 345,910 9.31% $ 148,569 4.00% $ 185,711 5.00%
Other Regulatory Matters
Dividends received from the subsidiary Bank is the primary source of
funds available to Whitney Holding Corporation for the declaration and payment
of dividends to the Company's shareholders. There are various regulatory and
statutory provisions that limit the amount of dividends that the subsidiary Bank
may distribute to the Company. Without prior regulatory approvals, the Bank will
have available an amount equal to approximately $48 million plus its current net
income to distribute as dividends in 1998.
Under current Federal Reserve regulations, the Bank is limited in the
amounts it may lend to the Whitney Holding Corporation to a maximum of 10% of
its capital and surplus, as defined in the regulations. Any such loans must be
collateralized from 100% to 130% of the loan amount, depending on the nature of
the underlying collateral. As of December 31, 1997, the Bank had no such loans
to the Whitney Holding Corporation.
Banks are required to maintain currency and coin or a
non-interest-bearing balance with the Federal Reserve Bank to meet reserve
requirements. The average balance required to be maintained by the Bank with the
Federal Reserve Bank in excess of currency and coin on hand was approximately
$13 million in 1997 and $40 million in 1996.
Page 53 of 64 Pages
(17) MERGERS AND ACQUISITIONS
In the second quarter of 1998, the Company expects to complete two
mergers, one with Meritrust Federal Saving Bank ("Meritrust") and one with
Louisiana National Security Bank ("LNSB"). Meritrust operates eight banking
offices in southeast Louisiana and has total assets of approximately $233
million, $122 million in loans, total deposits of $210 million and shareholders'
equity of $19 million. This transaction is priced at approximately $60.5
million. LNSB operates three banking offices in Ascension Parish, Louisiana and
has total assets of approximately $105 million, $52 million in loans, total
deposits of $93 million and shareholder's equity of $12 million. This
transaction is priced at approximately $32 million. Each of these mergers is
intended to qualify as a tax-free reorganization and will be accounted for as a
pooling of interests.
On April 18, 1997, the Company merged with Merchants Bancshares, Inc.,
the parent of Merchants Bank and Trust Company ("MB&T"). MB&T, with operations
along the Mississippi Gulf Coast, had total assets of approximately $208
million, deposits of $188 million and shareholders' equity of $17 million. This
transaction was priced at approximately $52 million. Merchants Bancshares'
shareholders received approximately 1.45 million shares of Company common stock
at the closing. The merger was accounted for as a pooling of interests.
On February 28, 1997, the Company completed a merger with First
National Bankshares, Inc. ("FNB"), the parent of First National Bank of Houma
("FNBH"). FNBH operated five banking offices in Terrebonne Parish, Louisiana and
had total assets of approximately $235 million, $126 million in loans, total
deposits of $210 million and shareholders' equity of $18 million. The price of
this transaction was $41 million and FNB shareholders received approximately
1.13 million shares of Company common stock at the closing. This merger was also
accounted for as a pooling of interests.
Pre-merger net interest income of MB&T and FNB in 1997, 1996, and 1995
totalled $3.4 million, $16.6 million and $16.5 million, respectively, and
pre-merger net income for the same periods totalled $0.6 million, $3.9 million
and $4.0 million.
In October 1996, the Company completed a merger with American Bank &
Trust ("ABT") of Pensacola, Florida with assets of $57 million and with Liberty
Holding Corporation ("LHC"), the parent of Liberty Bank, also of Pensacola with
assets of $48 million. Shareholders of ABT received 318,000 shares of Whitney
Holding Corporation common stock with a market value at the time of
approximately $10.3 million. LHC shareholders received 436,000 shares of Company
stock with an approximate value of $14.1 million. Each of these mergers was
accounted for as a pooling of interests.
In March 1996, the Company completed a merger with First Citizens
BancStock, Inc. ("FCB"), the parent of The First National Bank in St. Mary
Parish ("FNB"). FNB had total assets of approximately $243 million, including
$147 million in loans, total deposits of $214 million and shareholders' equity
of $27 million. FCB shareholders received 2.03 million shares of Company common
stock with a market value at the time of approximately $63 million. Holders of
FCB stock options at the closing date received options to buy approximately
192,000 shares of the Company's common stock at a weighted-average exercise
price of $11.64. The merger was accounted for as a pooling of interests.
In February 1995, Whitney Bank of Alabama purchased the assets and
assumed the deposit liabilities of the five Mobile branch offices of The Peoples
Bank, Elba, Alabama. The fair value of the tangible assets acquired totalled
approximately $90 million, including $47 million in loans, and the deposits
totalled $90 million. The purchase price was approximately $12 million.
Operating results from this acquisition are included in the accompanying
consolidated statements of operations from the date of acquisition.
Page 54 of 64 Pages
(18) COMMITMENTS AND CONTINGENCIES
In 1992, the Company discovered and reported to the United States
Department of Education ("DOE") that in earlier years it had not in all cases
followed some collection procedures related to guaranteed student loans under
the Federal Family Education Loan Program. At that time, a reserve for potential
settlement with DOE was established and internal procedures were revised for
future compliance with the Program. During 1997, the Company reached a tentative
settlement agreement with the DOE and recorded certain expenses and income tax
effects which were substantially offset by the reversal of excess reserves for
possible loan losses also related to the settlement. Management continues to
believe that the final settlement will not have a material effect on its results
of operations or financial condition in subsequent periods.
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing with
outside legal counsel pending and threatened actions, management is of the
opinion that the ultimate resolution of these actions will not have a material
effect on the Company's financial condition and results of operations.
Management also does not believe that compliance with existing federal,
state or local environmental laws and regulations will impose any material
financial obligation on the Company or materially affect the realizable value of
its assets.
Neither the Company nor the Bank have entered into material commitments
under non-cancelable leases for facilities or equipment.
Page 55 of 64 Pages
(19) PARENT COMPANY FINANCIAL STATEMENTS
Summarized parent-company-only financial statements of
Whitney Holding Corporation follow (in thousands):
December 31,
1997 1996
------------------------
BALANCE SHEETS
Investment in and advances to banking subsidiaries..... $ 473,194 $ 434,063
Other investments in subsidiaries...................... 1,032 1,021
Dividends receivable................................... 6,189 4,858
Other assets........................................... 5,405 6,336
------------------------
Total assets........................................... $ 485,820 $ 446,278
========================
Dividends payable and other liabilities................ $ 7,092 $ 5,742
Shareholders' equity, net of treasury shares and
unearned restricted stock compensation.............. 478,728 440,536
------------------------
Total liabilities and shareholders' equity............. $ 485,820 $ 446,278
========================
FOR YEAR ENDED DECEMBER 31,
STATEMENT OF OPERATIONS 1997 1996 1995
---------------------------------------
Dividend income from banking subsidiaries.............. $ 26,750 $ 26,033 $ 27,371
Equity in net undistributed earnings of banking
subsidiaries........................................ 26,307 20,085 22,182
Equity in net undistributed earnings of non-bank
subsidiaries........................................ 11 18 2
Other income (expense), net............................ (850) (1,642) (42)
---------------------------------------
Net income............................................. $ 52,218 $ 44,494 $ 49,513
=======================================
STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income.......................................... $ 52,218 $ 44,494 $ 49,513
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of banking
subsidiaries..................................... (26,307) (20,085) (22,182)
Equity in undistributed earnings of non-bank
subsidiaries..................................... (11) (18) (2)
(Increase) Decrease in dividends receivable......... (1,331) (1,216) (788)
Other, net.......................................... 118 710 (182)
---------------------------------------
Net cash provided by operating activities.............. $ 24,687 $ 23,885 $ 26,359
---------------------------------------
Cash flows from investing activities:
Investment in and advances to banking subsidiaries.. $ (7,742) $ (15,015) $ (12,752)
Investment in Whitney Community Development
Corporation...................................... - - (1,000)
Other, net.......................................... (653) 3,248 (4,454)
---------------------------------------
Net cash provided by (used in) investing
activities....................................... $ (8,395) $ (11,767) $ (18,206)
---------------------------------------
Cash flows from financing activities:
Dividends paid, including pooled entities........... $ (21,960) $ (17,037) $ (13,104)
Sale of common stock under employee savings plan and
dividend reinvestment plan....................... 5,045 2,685 5,089
Exercise of stock options........................... 856 1,657 86
Purchase of treasury stock.......................... (497) - -
Stock issued by pooled entities, pre-merger......... - 310 15
---------------------------------------
Net cash provided by (used in) financing activities. $ (16,556) $ (12,385) $ (7,914)
---------------------------------------
Net increase (decrease) in cash........................ $ (264) $ (267) $ 239
Cash at the beginning of the year...................... 334 601 362
---------------------------------------
Cash at the end of the year............................ $ 70 $ 334 $ 601
=======================================
Page 56 of 64 Pages
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgement where appropriate. Financial
information appearing throughout this annual report is consistent with the
financial statements.
The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Management has made available to Arthur
Andersen LLP all of the Company's financial records and related data, as well as
the minutes of shareholders' and directors' meetings. Furthermore, management
believes that all representations made to Arthur Andersen LLP during its audit
were valid and appropriate.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility and is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process and updated as necessary. Management continually monitors the
system of internal control for compliance. The Company maintains a strong
internal control auditing program that independently assesses the effectiveness
of the internal controls and recommends possible improvements thereto. As part
of their audit of the Company's 1997 financial statements, Arthur Andersen LLP
considered the Company's system of internal control to the extent they deemed
necessary to determine the nature, timing and extent of their audit tests.
Management has considered the recommendations of the internal auditors and
Arthur Andersen LLP concerning the Company's system of internal control and has
taken actions that it believes are cost-effective in the circumstances to
respond appropriately to these recommendations. Management believes that, as of
December 31, 1997, the Company's system of internal control is adequate to
accomplish the objectives discussed herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF WHITNEY HOLDING CORPORATION:
We have audited the accompanying consolidated balance sheets of Whitney
Holding Corporation and subsidiaries (a Louisiana corporation) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Whitney
Holding Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 15, 1998
Page 57 of 64 Pages
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following quarterly financial information is unaudited. In the
opinion of management, all normal recurring adjustments necessary to present
fairly the results of operations for such periods are reflected.
1997 - UNAUDITED
(in thousands, except per-share amounts)
----------------------------------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------------------
Interest income.............................$ 74,601 $ 74,572 $ 72,154 $ 70,082
Net interest income......................... 47,770 47,456 45,260 43,976
Reduction in reserve (provision)
for possible loan losses.................. - 3,000 - (188)
Income before income taxes.................. 20,053 21,755 20,790 16,081
Net income.................................. 13,628 13,653 14,152 10,785
Earnings per share..........................$ 0.66 $ 0.66 $ 0.68 $ 0.52
Earnings per share, assuming dilution.......$ 0.65 $ 0.65 $ 0.68 $ 0.52
Dividends declared per share, historical
Whitney Holding Corporation............$ 0.28 $ 0.28 $ 0.28 $ 0.28
Range of closing stock prices............... 46 1/8 - 59 3/4 40 - 47 1/4 35 1/4 - 43 34 3/4 - 40 1/2
1996 - UNAUDITED
(in thousands, except per-share amounts)
----------------------------------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------------------
Interest income.............................$ 69,909 $ 68,261 $ 66,104 $ 66,346
Net interest income......................... 43,364 43,036 41,011 41,157
Reduction in reserve (provision)
for possible loan losses.................. 4,810 (190) (110) (75)
Income before income taxes.................. 17,823 17,373 16,749 13,688
Net income.................................. 11,799 11,867 11,421 9,407
Earnings per share..........................$ 0.57 $ 0.58 $ 0.56 $ 0.47
Earnings per share, assuming dilution.......$ 0.57 $ 0.58 $ 0.56 $ 0.46
Dividends declared per share, historical
Whitney Holding Corporation............$ 0.25 $ 0.25 $ 0.25 $ 0.22
Range of closing stock prices............... 31 3/4 - 35 7/8 29 1/2 - 32 3/4 29 3/4 - 31 3/4 29 3/4 - 31 3/4
Page 58 of 64 Pages
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In response to this item, registrant incorporates by reference the
sections entitled "Election of Directors," "Certain Transactions" and
"Compliance with Section 16(a) of the Exchange Act" of its Proxy Statement dated
March 18, 1998.
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the
sections entitled "Compensation of Directors," "Executive Compensation" and the
sub-sections entitled "Long-Term Incentive Plan" and "Executive Agreements"
under the heading of "Executive Compensation Report," of its Proxy Statement
dated March 18, 1998.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this item, registrant incorporates by reference the
sections entitled "Voting Securities and Principal Holders Thereof" and
"Election of Directors" of its Proxy Statement dated March 18, 1998.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the
section entitled "Certain Transactions" of its Proxy Statement dated March 18,
1998.
Page 59 of 64 Pages
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of the Company and its
subsidiaries are included in Part II Item 8:
Page Number
-----------
Consolidated Balance Sheets --
December 31, 1997 and 1996 29
Consolidated Statements of Operations --
Years Ended December 31, 1997, 1996, and 1995 30
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 1997, 1996, and 1995 31
Consolidated Statements of Cash Flows --
Years Ended December 31, 1997, 1996, and 1995 32
Notes to Financial Statements 33
Report of Independent Public Accountants 57
Summary of Quarterly Financial Information 58
(a) (2) All schedules have been omitted because they are either not applicable
or the required information has been included in the financial statements or
notes to the financial statements.
(a)(3) Exhibits:
Exhibit 3.1 - Copy of Composite Charter (filed as Exhibit 3(i) to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1993 (Commission file number 0-1026) and incorporated herein by
reference)
Exhibit 3.2 - Copy of Bylaws (filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
(Commission file number 0-1026) and incorporated by reference herein)
Exhibit 10.1 - Stock Option Agreement between Whitney Holding
Corporation and William L. Marks (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1990 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.2 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and William L. Marks (filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.3 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and R. King Milling (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 (Commission file number 0-1026) and incorporated by reference)
Page 60 of 64 Pages
Exhibit 10.4 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Edward B. Grimball (filed as Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.5 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Kenneth A. Lawder, Jr. (filed as Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993 (Commission file number 0-1026) and incorporated by
reference)
Exhibit 10.6 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and G. Blair Ferguson (filed as Exhibit 10.7 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 (Commission file number 0-1026) and incorporated by
reference)
Exhibit 10.7 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Joseph W. May (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.8 - Executive agreement between Whitney Holding Corporation,
Whitney Bank of Alabama and John C. Hope, III (filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1994 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.9 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Robert C. Baird, Jr. (filed as Exhibit 10.9
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (Commission file number 0-1026) and incorporated by
reference)
Exhibit 10.10a - Long-term incentive program (filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1991 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.10b - Long-term incentive plan (filed as a Proposal in the
Company's Proxy Statement dated March 18, 1997 (Commission file number
0-1026) and incorporated by reference)
Exhibit 10.11 - Executive compensation plan (filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1991 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.12 - Form of restricted stock agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit 19.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992 (Commission file number 0-1026) and incorporated by
reference)
Exhibit 10.13 - Form of stock option agreement between Whitney Holding
Corporation and certain of its officers (filed as Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 (Commission file number 0-1026) and incorporated by reference)
Exhibit 10.14 - Directors' Compensation Plan (filed as Exhibit A to the
Company's Proxy Statement dated March 24, 1994 (Commission file number
0-1026) and incorporated by reference)
Exhibit 10.14a - Amendment No. 1 to the Whitney Holding Corporation
Directors' Compensation Plan (filed as Exhibit A to the Company's Proxy
Statement dated March 15, 1996 (Commission file number 0- 1026) and
incorporated by reference)
Page 61 of 64 Pages
Exhibit 10.15 - Retirement Restoration Plan effective January 1, 1995
(filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (Commission file number 0-1026) and
incorporated by reference)
Exhibit 10.16 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Rodney D. Chard (filed as
Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (Commission file number 0-1026) and
incorporated by reference)
Exhibit 10.17 - Form of Amendment to the Executive agreements (filed as
Exhibits 10.2 through 10.9 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (Commission file number 0-1026)
and incorporated by reference)
Exhibit 10.18 - Executive agreement between Whitney National Bank of
Mississippi and Guy C. Billups, Jr. dated April 18, 1997 (filed as
Exhibit 10.19 to the Company's Quarterly Report on form 10-Q for the
quarter ended June 30, 1997 (Commission file number 0-1026) and
incorporated by reference)
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of the capital stock of Whitney
National Bank, successor by merger in early January 1998 to Whitney
Bank of Alabama, Whitney National Bank of Florida and Whitney National
Bank of Mississippi.
All other subsidiaries considered in the aggregate would not constitute
a significant subsidiary.
Exhibit 27 - Financial Data Schedule
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By: /s/ William L. Marks
------------------------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer March 25, 1998
-------------------------
Date
Page 62 of 64 Pages
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ William L. Marks , Chairman of the Board and
- -----------------------------------
William L. Marks Chief Executive Officer and
Director March 25, 1998
-----------------------------
/s/ R. King Milling , President and Director March 25, 1998
- ----------------------------------- ---------------
R. King Milling
/s/ Edward B. Grimball , Executive Vice President & C.F.O.
- -----------------------------------
Edward B. Grimball (Principal
Accounting
Officer) March 25, 1998
-----------------------
/s/ John G. Phillips , Director March 25, 1998
- ----------------------------------- -----------------------
John G. Phillips
/s/ W.P. Snyder III , Director March 25, 1998
- ----------------------------------- -----------------------
W.P. Snyder III
/s/ Robert H. Crosby, Jr. , Director March 25, 1998
- ----------------------------------- -----------------------
Robert H. Crosby, Jr.
, Director
- ----------------------------------- -----------------------
Richard B. Crowell
/s/ James M. Cain , Director March 25, 1998
- ----------------------------------- -----------------------
James M. Cain
/s/ Harry J. Blumenthal, Jr. , Director March 25, 1998
- ----------------------------------- -----------------------
Harry J. Blumenthal, Jr.
/s/ Robert E. Howson , Director March 25, 1998
- ----------------------------------- -----------------------
Robert E. Howson
/s/ Warren K. Watters , Director March 25, 1998
- ----------------------------------- -----------------------
Warren K. Watters
/s/ John K. Roberts, Jr. , Director March 25, 1998
- ----------------------------------- -----------------------
John K. Roberts, Jr.
/s/ William A. Hines , Director March 25, 1998
- ----------------------------------- -----------------------
William A. Hines
/s/ E. James Kock, Jr. , Director March 25, 1998
- ----------------------------------- -----------------------
E. James Kock, Jr.
/s/ John J. Kelly , Director March 25, 1998
- ----------------------------------- -----------------------
John J. Kelly
/s/ Angus R. Cooper, III , Director March 25, 1998
- ----------------------------------- -----------------------
Angus R. Cooper, III
, Director
- ----------------------------------- -----------------------
Joel B. Bullard, Jr.
Page 63 of 64 Pages
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Camille A. Cutrone , Director March 25, 1998
- ----------------------------------- -----------------------
Camille A. Cutrone
/s/ Carroll W. Suggs , Director March 25, 1998
- ----------------------------------- -----------------------
Carroll W. Suggs
/s/ Alfred S. Lippman , Director March 25, 1998
- ----------------------------------- -----------------------
Alfred S. Lippman
Page 64 of 64 Pages